- CFA Exams
- 2024 Level I
- Topic 2. Economics
- Learning Module 5. Introduction to Geopolitics
- Subject 2. Forces of Globalization
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Subject 2. Forces of Globalization PDF Download
Globalization is the process of interaction and integration among people, companies, and governments worldwide. It is characterized by the cross-border movement of goods, information, employment, and culture.
Anti-globalization or nationalism is the promotion of a country's own economic interests at the expense of or in opposition to those of other nations.
Motivations for Globalization
Three potential gains to participating in globalization are:
Increasing profits. There are two ways in which this can happen: Increasing sales or reducing costs.
Access to resources and markets. Companies looking for long-term access to resources like people or raw materials may need to work together. Globalizing eventually to have access to these resources.
Intrinsic gain. Accelerated productivity as a result of learning new techniques is a good example.
Costs of Globalization
Globalization also has some potential drawbacks, such as:
Unequal accrual of economic and financial gains.Jobs are created in a foreign country but may be lost in the home country.
Lower environmental, social, and governance standards.Low-cost nations frequently have lower level of local regulations.
Political consequences.Globalization can exacerbate income and wealth inequality, and these may result in a decline in economic and political cooperation.
Interdependence.Countries may become too reliant on foreign countries for certain resources.
Threats of Rollback
While a complete reversal of globalization is extremely unlikely, companies are using the following tactics to strengthen their supply chains while adapting to evolving conditions.
Reshoring the essentials. While the global supply chain continues to be an efficient and cost-effective source of most products, many companies have sought to reduce their exposure to manufacturing and procurement risk by returning production of certain essential items back to their domestic market.
Re-globalizing production. The COVID-19 pandemic has also demonstrated the global supply chain's vulnerability to disruptions in one or more countries. While companies will continue to source inputs from foreign markets, they have begun to diversify their supply chains, even duplicating certain elements of them. This helps to mitigate exposure to production disruptions, rising labor costs, and political risk.
Doubling down on key markets. While the costs and risks of operating in markets such as China have increased, productivity has also increased. Relocating foreign operations would require significant investments of time and capital that few companies are willing or even able to undertake. Companies that sell domestically within the countries where they have located their offshore production can reaffirm their commitment by producing "in country, for the country" while also taking steps to develop and strengthen external supply chains.
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