Are you wondering how does globalization of business benefits shareholders of an organization? We’ll explain.
Globalization refers to a process by which a company based in one country expands its business to other countries. It is the fusion of the countries’ economic, political, and cultural systems. Globalization is made possible by technological and transportation advancements that have made cross-national interaction simpler.
It’s a transition from restricting companies to local areas to spreading throughout the globe through the exchange of world perspectives, economies, cultures, and much more. Factors like the ability to trade freely, obtain easy access to foreign resources and assets, and make efficient use of the labor market play an essential role in this transformation.
The main goal of globalization is to ensure that businesses obtain greater returns and make more money with less investment. Both the cultural and economic systems of the countries involved must align for globalization to occur.
This creates an environment in which the countries involved in the trade must cooperate and rely on one another to reap the benefits of shared interests. The world’s nations appear to be integrating their political and economic positions as more policies emerge. Globalization will only increase as a result.
How Does Globalization Work?
I’ll walk you through an example to help you understand how international strategy and globalization work. Consider two companies that compete in the smartphone manufacturing industry. Assume they’re both based in the same region, A, and spend the same amount on production, labor, and other expenses. That is to say, they must succeed in their business under the same conditions. They must sell their products for a specific price and serve customers in the same location.
Because of the advancements in technology and communication, a company from nation B can now sell smartphones in country A. Due to the disparity between labor and production costs, this new company may sell for a considerably lower price. This directly impacts both organizations, and they must respond to remain competitive. This is why countries have to depend on each other to maximize profits.
The policies that foster free trade, legal access and transportation across borders, and overall collaboration between countries are the driving force behind the creation of globalization. These characteristics allow businesses to take advantage of low labor and production expenses in some areas while selling their products at a higher price in other areas to maximize profits.
The speed with which technology and communication improve directly bears how rapidly globalization takes hold worldwide. Due to globalization, money, products, and other resources flow as smoothly as possible. Globalization is so active today because countries can transport resources and products swiftly and effectively.
Examples Of Globalization
Take, for example, Amazon. Amazon has transformed the way we buy and sell items on its own. Their impact on the economic prosperity of their countries is unparalleled. Amazon provides tens of thousands of employment openings, expertise, and revenue in the countries where they operate. One downside is that these huge corporations exploit low labor and manufacturing costs by destroying small and local businesses. However, Amazon has managed to employ nearly 1.4 million employees.
Amazon, McDonald’s, and other companies are examples of how globalization can help a company thrive. Any company may go global and flourish if it adapts to different cultures and expands its business with the right strategy.
Advantages Of Globalization
There is no such thing as a country that is self-sufficient. Countries rely on one another to get through economic hardships. Globalization has directly impacted how countries rely on one another and benefit from shared resources.
The availability of a given good or product varies by country. Prices may vary depending on this. As a result of globalization, countries can lower their production costs by utilizing lower manufacturing costs in other countries. This guarantees that there is effective use of resources to benefit the trade partners.
- More than any other, the employment sector has been profoundly influenced by the development of globalization. BPOs provide a large number of job opportunities because of the significant shift in the number of jobs available and how those positions were structured and constituted. This directly impacted unemployment rates and other statistics. Globalization has changed how people generate income by increasing the economy’s overall efficiency and equating pricing discrepancies among countries by boosting the mobility of products and production inputs. It also improved employment conditions.
- Globalization has simplified the process of foreign exchange.
- The government offers various tax benefits and handles trade finance to foster globalization.
- One of the benefits of globalization is the advancement of technology. Companies have been motivated to keep up with every part of their business to stay competitive. It has aided industries in achieving their goals and maximizing profits.
- It helped organizations in better managing the risks involved.
- Globalization helped organizations focus on customer satisfaction by lowering production costs and improving quality.
Now that you have a clear idea about what globalization is and how transformative it is. Let’s get into how does globalization of business benefits shareholders of an organization.
The Role Of A Shareholder
Any individual that owns stock in a corporation is referred to as a shareholder. Shareholders’ contribution is the determining factor in running the company. A shareholder can be anyone – from your friends to family, business partners, and promoters who draw people towards the business.
Here’s how they play a crucial role in how a company is set up:
- It is the shareholders’ job to take control of the management department and guarantee that the appropriate decisions are made. They frequently assess how well the company is doing and what changes might be made to improve things. Shareholders can express complaints or give their approval when a company’s management makes a choice. They also conduct meetings to discuss the company’s plans.
- Shareholders ensure that companies are held responsible for their conduct.
- They also ensure that companies’ business is conducted ethically without violation or committing fraud.
- Shareholders collaborate with the company’s data analysts to choose the optimal strategy for the company’s growth. They maintain the company’s peace by resolving conflicts between the board and team members.
How Does Globalization Of Business Benefits Shareholders Of An Organization?
Globalization has helped organizations flourish not only in local marketplaces but also throughout international markets, as we’ve mentioned. This indicates that the company can create a lot of profit and income.
Here’s how the organization’s globalization affects its shareholders:
- Companies that globalize have a greater chance of increasing shareholder value than those that do not. This is because companies that do not globalize will be unable to create any revenue or profit, resulting in a decrease in shareholder value. Those heavily involved in services globalization had a 15% profit margin in 2005, whereas companies that did not engage had just a 6.5 percent profit margin. This percentage difference can impact how effectively a business can stay afloat in a competitive market.
- Organizations that go worldwide see a huge increase in revenue. This indicates that the organization has successfully attracted new clients while also retaining existing ones. It allows businesses to be more innovative and develop new products. They can also raise product prices because their brand value has improved. All of this adds to the value of the company’s stock.
- Because of their track record of success, shareholders may negotiate better terms with suppliers and assist them in better managing other firm elements such as marketing budgets, payrolls, and so on.
- Companies benefit from globalization by having more inventory. Because the inventory turnover ratio impacts a company’s potential for revenue generation, all organizations should strive to improve their inventory. Simply said, a high inventory turnover ratio translates to more revenue. It also helps businesses manage holding costs, storage space rent, and other expenses.
- Globalization has helped organizations achieve capital efficiency and improve technology to remain relevant and compete.
- When a company is successful, shareholders receive higher dividends and can take advantage of numerous advantages and bonuses. They get better returns on the capital they provide.
- Shareholders will have the freedom to take bigger risks.
- Shareholders can enjoy the profits and expand their business.
- Because of globalization, the companies these stockholders own, generate more revenue and profit.
To summarize, globalization has revolutionized how we trade and generate revenue. Companies no longer restrict themselves to their local businesses. They are continuously striving to expand and evolve. Globalization has helped stockholders enjoy better returns on their capital and also manage their assets better. They now have the freedom to take risks and get bigger profits because even if they have made a loss on local markets, they can compensate for the loss by making profits on a global scale. This helps the stockholders hire teams and develop innovative ideas and new products to enter the market. They even have the grounds to negotiate better deals with suppliers and bring new clients.
It also improves the brand quality, thereby attracting new customers and retaining old ones. Stockholders enjoy most of the benefits because they have their capital invested. So, with this, we hope you found answers to how does globalization of business benefits shareholders of an organization.
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