What Is Globalization in Business?

As technology and transportation have advanced, business has become increasingly global. In addition to new challenges and international tensions, purposeful expansion has brought new jobs, customer audiences, and economic opportunity.

What Is Globalization?

Globalization is the increase in the flow of goods, services, capital, people, and ideas across international boundaries, according to the online course Global Business.

“We live in an age of globalization,” says Harvard Business School Professor Forest Reinhardt, who teaches Global Business. “That is, national economies are ever more tightly connected with one another than ever before.”

Whether you’re looking to learn more about your international company or thinking of expanding your business into other countries, you need a strong foundation in the basics of globalization in business. Here’s a primer on what it means to be an international business, factors to consider when approaching the global business landscape, and how to build your knowledge.

What Does It Mean to Be an International Business?

An international business is any company that operates and produces or sells goods between two or more countries. There are three ways a business can be considered international:

1. It produces goods domestically and sells domestically and internationally.
2. It produces goods in a different country but sells domestically.
3. It produces goods in a different country and sells domestically and internationally.

If your business falls into one of these categories, there are two types of international business models to consider: transnational and multinational.

Transnational corporations have offices in multiple countries, each responsible for a different facet of the organization. For instance, marketing may be based in London, research and development in Bogota, and software development in New York.

An example of a successful transnational corporation is Nestlé, which splits business operations for each of its brands by region. There are over 100 Nestlé offices worldwide with distinct responsibilities. For instance, the Nestlé Research Center is located in Switzerland, which acts as the hub that oversees each brand-specific research and development center, of which there are 23. All Nestlé offices operate under the company’s headquarters in Switzerland.

Multinational corporations also have offices in multiple countries, but unlike transnational corporations, each is a microcosm of the larger organization. This means each office has, for example, its own leadership, marketing, sales, research and development, technology, and human resources teams. An example of a multinational corporation is PepsiCo, which has 32 offices across 24 countries.

If you’re considering which international business model to implement for your growing company, know that each has its pros and cons. Transnational corporations typically have the benefit of everyone on a specific team being located in the same office, although this may change with the rise of remote work. Being in the same office can decrease miscommunication and reinforce the idea that each office is an integral part of the larger company. Multinational companies may not beget this same mindset, but they benefit from having someone from every team present in each office. This can enable them to collaborate and tailor efforts to the audience in their specific location without juggling time differences and language barriers to collaborate with other teams.

There’s no one-size-fits-all approach to globalization; only you can decide what works best for your business.

Related: Why Study Global Business? 5 Benefits to Consider

Facets of Global Business to Consider

Globalization doesn’t just refer to the location of a firm’s offices and customers—it also encompasses the nuances and economic factors of conducting business internationally and existing in a global economy. Even if your company operates domestically, globalization can influence the way you do business. Here are a few factors to consider when thinking about how global business impacts your organization:

• Politics and laws: International politics can color relationships between nations and regulate what products are allowed in and out of their borders. Keeping up with current events can help you prepare for the business impacts of shifts in policy and foreign affairs.
• The environment: There’s no global issue more pressing than climate change. Unfortunately, globalization can contribute significantly to its negative effects due to increased transportation of materials and products, business travel, and the number of factories. If you’re engaging in global business, keep sustainability in mind to avoid contributing to climate change.
• Macroeconomics: Principles of macroeconomics can allow you to compare countries’ financial health on a one-to-one basis and draw connections between trends. Some metrics to know include:

• Gross domestic product (GDP)
• Unemployment rate
• Inflation rate
• Degree of income inequality
• Currency exchange rate

• Human rights: Because laws dictating human rights—including labor laws—differ from country to country, operating as a global business requires research and critical thought to ensure you’re not exploiting people for labor, even if it’s technically legal. Ethics are required for making decisions that may cost your business money at the expense of protecting human rights.
• Cultural differences and language barriers: Operating a global business requires knowing and respecting other cultures. Without understanding the areas you do business in, you could unintentionally offend someone and harm your working relationships. In the case of language barriers, this may require you to hire translators and multilingual employees to bridge the gap.

Learning More About Globalization

If you’re interested in furthering your knowledge of the global business landscape, one easy way to do so is by reading international news. Try incorporating foreign cities’ local news into your daily intake to gain perspective on the state of their economies.

Additionally, consider taking an online course like Global Business. You’ll learn how to assess macroeconomic situations; gauge the short- and long-term effects of inflation, trade, and investment; and use insightful frameworks to plan the best global strategy for your organization.

Are you interested in exploring the nuances of the international business world? Learn more about our four-week online course Global Business and other Business in Society courses. If you aren't sure which course is the right fit, download our free course flowchart to determine which best aligns with your goals.