Technological advancement greatly impacts social lives, the conduct and performance of businesses, and the implementation of policies among other areas in different sectors. One such impact of technology is globalization which has changed and shaped the economy of many countries both under the developed and developing categories. Globalization is the universal movement towards communication integration, trade, and finance as a result of opening nationalistic and local perspectives to a wider outlook of an independent and interrelated universe with free transfer of goods, services, and capital across nations’ frontiers (Cairns & Sliwa, 2009). Globalization has both positive and negative impacts but this paper focuses on its benefits in developed and developing countries using the PESTEL framework.
PESTEL
PESTEL is an acronym for political, environmental, social, technological, economic, and legal context, which a business operates. It is an analysis tool for assessing external environment factors more so as related to foreign markets. PESTEL helps businesses identify market opportunities and threats helping managers formulate strategies essential for effective operation. PESTEL helps identify those macro-environmental factors that are beyond business control. This tool will be discussed in details below and its relation to globalization.
Political Factors
Various political factors, including peace, the presence of policies on international trade and taxation affect globalization. Countries set up policies such as free trade zones and maquiladora that encourage globalization, as well as enhance countries’ economics. Such policies more so in developing countries more help attract investors which in turn results in employment, improved living standards, improved infrastructure, and a rise in the country’s GDP (Davis, 2007). Other policies include government involvement in trade agreements such as ASEAN, or EU, which allows countries to easily conduct trade.
Globalization goes ahead to enhance peace in a nation and between countries. For instance, the US intervention in Iran and Iraq among other oil countries aims at enhancing peace in order to protect the oil market. Since globalization encourages businesses to expand to other nations, governments have the role and responsibility of protecting their businesses which means that they have to work together to enhance peace which eventually results to an economic boost. Additionally, the presence of peace boosts consumers’ confidence resulting in increased consumers’ spending and increased revenues for firms (Brenner, 2006). Governments also benefit from the implementation of taxation policies. Through taxation on international companies, states improve both their infrastructures and the lives of their citizens.
Legal Factors
Globalization forces nations to develop international trade laws that guide how businesses are conducted. These laws include importation and exportation laws and exchange of goods laws. These international laws help reduce conflict by clearly stipulating the roles and responsibilities of the involved parties. Other laws include product safety laws, health and safety laws, and employment laws which are implemented to protect customers and employees from being exploited by industries, and legal protection of intellectual properties. Policies concerning private property and monopolies also affect globalization. For instance, since Coca-Cola has a huge market share in Europe, it is required to give up some shelf space to competitive products to increase consumers’ choices. Such a policy encourages both international and local investors to offer substitute products to the market which in return creates a variety of products and services for citizens to choose from.
Economic Factors
Various economic factors affect the success of a business. Some of these economic factors are as a result of globalization. Some of these factors include shaping forecast and current interest rates. With globalization, firms participate in international trade which enhances the balance of payment between countries. BOP helps improve the currency exchange rates for both developing and developed nations and eventually boosts their economy. Additionally, states benefit from taxing imports and exports which forms a great source of income. Globalization also helps reduce a country’s inflation and deflation rates since different stakeholders are involved in the decision-making process. The government has to consult local and international investors before implementing strategies such as taxation policies which can affect a country’s economy.
Through globalization, firms enhance job creation as investors and are able to conduct their businesses freely and cheap. This job creation not only results to increase per capita of citizens but also translates to high GDP. Moreover, the presence of multinational companies in developing countries helps improve education as these companies offer internship opportunities for students and graduates to learn and gain experience in their various fields. Managers of these firms also act as role models to the youths and inspire them to focus on positive life aspects. Since youths are viewed as leaders of tomorrow, the presence of these role models helps them refraining from criminal activities. Additionally, the presence of international firms helps improve a state economy by helping improve infrastructure through CSR such as the construction of hospitals, schools, and playing grounds.
Developing countries are the one that benefits more from globalization compared to developed states since they have more to gain from the developed counties. For instance, globalization has made it easy for developing countries to access goods and services conveniently from developed countries. Additionally, they gain knowledge and experience on how to run and operate businesses and also help local industries adopt modern technology. On the other hand, developed countries benefit from accessing cheap raw materials and labor from developing countries which in turn translates to reduced production costs and increased revenue. Due to increased competition, these firms that use this strategy are able to outdo their competitors since they offer their products at a reduced price which enhance customer attraction and loyalty. Some of these firms from developed countries such as the US have set up processing plants in developing countries such as Asia and through globalization are able to serve a huge market size (Bonacich & Wilson, 2008). Moreover, the host country enjoys increased revenue through taxation. Free trade is one economical advantage of globalization which results to benefits such as greater competition, bigger export markets for local manufacturers, lower prices for customers and consumers, a variety of commodities due to the presence of substitutes, and enhanced economies of scale.
Social-cultural Factors
Different social-cultural factors affect the operation and success of a business. These factors include lifestyle trends, demographics, education and income levels, religion, consumers’ opinions and attitudes, and attitudes toward leisure and work. Since cultural and social influences on business differ from one state to another, global firms have to embrace themselves for some of the stated factors. Globalization shapes a country’s demography which is one of the social-cultural factors by enhancing the free movement of labor a benefit that helps reduce geographical inequality. Since most investors set up their processing firms in areas characterized by cheap labor and raw materials, they prefer rural areas to urban due to the reduced costs of production. By doing this, they encourage people to go back to rural areas due to the presence of jobs, a move that helps de-congest towns and cities. Additionally, the move helps reduce illiteracy levels in rural areas since most organizations help in setting up schools and encouraging people to pursue education as a form of their CSR. By offering jobs to these residents, they increase their income levels, which eventually translate to improved lifestyle trends. Coca-Cola Company is one known firm that has created employment for many people all over the world and has offered education sponsorship to various individuals more so in developing nations.
Moreover, globalization helps shape the culture of local residents, thus creating cultural diversity. Most firms that ventured into international markets bring along some of their workers who interact with local residents and in the process get to exchange some of their beliefs. The free movement of labor also helps create peace between nations through activities such as intermarriages and the sharing of culture and values. In US for instance, the peaceful existence of residents have made it easy for business to thrive (Brenner, 2009). Successful firms are those that conduct thorough market analysis and understand their customers’ needs and wants. Such research and survey can help local government and other investors make decisions on what products and services to offer to the market. These parties can help create awareness to people through sensitization with the aim of encouraging them to engage in activities that create peace and harmony. These firms should also understand different factors that affect consumers buying decision such as religion and consumer’s attitude. With such knowledge, they can easily manufacture products and services that serve the needs and wants of the citizens. Lastly, globalization helps change the residents’ lifestyle trends due to the presence of a variety of commodities.
Environmental and Technical Factors
Globalization affects the environmental factor in that it brings together leaders from different nations to discuss ways to protect the environment. For instance, conservation of the environment is a key agenda in most of the G-7 meetings as the leaders formulate ways in which countries can help reduce the destruction of the environment. Additionally, through globalization, customers can pressure firms to engage in environmentally friendly activities such as green procurement since they have a high bargaining power. They can threaten to settle for substitute products from international firms that protect the environment. Technological factors, on the other hand, possess numerous benefits such as improved quality as a result of globalization. As a result of increased competition resulting from globalization, firms have to ensure that they have equipped themselves with the latest technologies which are beneficial to a country’s economy.
Conclusion
Through the PESTEL analysis, it is evident that globalization has positive impacts on both developed and developing countries. Some of these benefits include increased economies of scale, the free movement of labor, free trade, technological advancement, increased investment, and greater competition among others (Pettinger, 2017). However, there are some disadvantages or costs, associated with globalization, such as labor drain, tax avoidance and competition, environmental costs, such as increased use of non-renewable resources, and developed countries might take advantage of developing countries. Therefore, clear regulations should available to help guide globalization and ensure that the relationship is mutual. Developed countries should act in good faith and help developing countries improve their economies other than exploiting them. Lastly, proper implementation of globalization is likely to benefit both developed and developing countries.
References:
Bonacich, E., & Wilson, JB. 2008. Getting the goods: Ports, labor, and the logistics revolution. Ithaca, NY: Cornell University Press.
Brenner, R. 2006. Introduction and Chapter 1 in The Economics of global turbulence, London: Verso
Brenner, Robert 2009. What is good for Goldman Sachs is Good for America in The Economics of global turbulence, London: Verso
Cairns, G. and M. Sliwa 2009. The Institutions of Globalization in Globalization: A Very Short Introduction, Oxford University Press, Oxford, pp. 38-57
Davis, M. 2007. Chapter 7. SAPing the Third World in Planet of Slums. London: Verso, pp. 151-173.
Pettinger, T. 2017. Costs and benefits of globalization. Economics Help. [Online] 27 June [Accessed 8 August 2018]. Available from: https://www.economicshelp.org/blog/81/trade/costs-and-benefits-of-globalisation/
