The Negative Effects of Globalization on Companies
Talks of economic globalization reached a fever pitch during the 2016 U.S. presidential election, and everyone seems to have an opinion on it. But what exactly does globalization mean for business? In short, it refers to the economic growth of world trade and investment. Many companies offer their services globally to expand their market, or they use services from overseas to decrease their costs. Outsourcing services, decrease in wages, workers’ rights and interdependent economy are some of the negative effects of globalization on companies.
Foreign workforce offers cheaper labor for many service-related positions, but the control of the quality of service, shipping expenses and time delays can create sizeable hidden costs. A company considering outsourcing a service needs to look at all related expenses and possible risks associated with having it done overseas. Shipping products overseas, delays in information or financial reporting can reduce any financial savings and sour relationships with customers.
Service jobs, such as information technology, manufacturing, education, accounting, and software development are being lost in developing countries, such as the United States and Europe, to lower paying emerging countries, such as India and China. Outsourcing work that was an internal function may help minimize company expenses. However, the quality of the work can suffer and potentially create more expenses because of the language barriers.
Many jobs performed in emerging countries for less cause a decrease in the wages offered in developing countries. As wages decrease for positions that paid more the workers will feel less appreciated and put forth less effort in their job. In emerging countries where there are minimal wage labor laws, the competition for outsourced work will drive down wages for the workers. When companies stop seeing their personnel as a business investment they create long-term problems for short-term savings.
Labor laws that protect workers from exploitation and mistreatment are almost non-existent in some emerging countries. This could potentially harm the image of a company that outsources services from a foreign company that exploits children or the rights of their workers. A company’s negative public reputation in how it treats its employees, even if they are overseas, can cause a loss in customer support of products. There are growing numbers of consumers who actively seek products that are Fair Trade or otherwise certified as free from exploitative or unethical practices.
The collapse of the United States economy opened the opportunity for foreign companies to purchase interests in American companies. Investing in foreign companies creates a global interdependency that can stabilize the economy on a temporary basis. It also has the potential to create a “global domino effect,” which could cause a recession throughout the world. This is also true in reverse. As American companies become interdependent on foreign markets and workers' recessions in those marketplaces can negatively affect the American economy.