The Benefits & Challenges of Globalization

Posted on 8 July 2022 by IRIS FMP

Categories: Global Payroll

With technological progress and doing business overseas becoming easier, the world is more connected than ever. This is a helpful way of describing globalization, where every year increasingly more businesses are delivered to the world, navigating new markets and cultures in the process.

Even though globalization is largely recognized for its advantages, many businesses may still be hesitant to grow and expand across borders. The challenges of globalization are varied, as growing businesses will need to consider compliance, local regulations, and the other consequences of cross-border expansion. Cultural differences, as well as the intricacies of local employment laws, are examples of undeniable challenges. Yet, the benefits of globalization outweigh the growing pains of a business expanding overseas, where business can access new talent, markets and audiences.

What is Globalization?

Globalization describes how products, services, talent and information are spreading across different borders – be it geographical, linguistic, cultural, or other boundaries.

But why does it matter for a business? “Globalization” is a process whereby a business or larger organization decides to develop its influence on an international scale, operating in foreign markets. Globalization is facilitated when there’s an open policy between countries, and businesses are able to develop relationships in these new territories, which is influenced through geopolitics, technology, travel and culture, and more.

Globalization is motivated by a variety of businesses-oriented goals, and the major interest is how operating internationally can become a competitive advantage. Executives need to understand what this means for the future of their business and how the global marketplace can work to their advantage – or risk losing out.

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What are the Benefits of Globalization?

Every business will be impacted by globalization in different ways. For businesses proactively expanding overseas, there are often benefits associated with this process, including:

1. Access to Innovation

As the world becomes increasingly connected, knowledge and technology are able to progress at an accelerated rate. As this pace of change can be so rapid, any developments in the Asia-Pacific will, for example, spread and evolve the kinds of consumer technology available in other markets, like in the United States.

Innovation, or technological progress, has exponentially changed over the years, according to a recent report. This can be visualized in key statistics, such as increases in global product quality, or how every two years the number of transistors on microchips doubles – which powers electronic devices. These changes demonstrate how effectively innovation has progressed and reached new markets.

2. Opens Talent Opportunities

Where local talent becomes more challenging to acquire, or a business needs to diversify its skills, global talent opportunities can help bridge that gap. Hiring global talent can be beneficial for any business, especially where the exchange of new ideas, cultures and approaches can evolve how a business operates. Language skills, diversified educational backgrounds, and new skills sets – businesses that are open to hiring internationally can take advantage by widening their pool of talent and recruiting to support business goals, such as using different languages to approach new customers.

According to LinkedIn’s Global Recruiting Report trends, HR is focusing increasingly on candidate diversity, including global hires, as businesses prioritize new and different mixes of skills. As markets are slowed by talent shortages, companies are looking to diversify their talent acquisition by embracing a global mindset. For different industries, such as those working in tech, organizations are even looking to emerging talent markets as part of their recruitment strategy, including Poland, Toronto, and Ukraine.

3. Engage Different Audiences

It’s a common misconception that businesses expand globally to unlock new clients, customers or an audience. Whilst this is certainly a benefit of globalization, organizations can also invest in and unveil new products or services. Globalization exposes a business to new audiences, which means there’s greater opportunity to broaden their reach, engagement and access to a wider customer base.

4. Entry to Diverse Markets

Market expansion is the most common way for a business to scale its operation. However, when it comes to global expansion into new markets, it’s critical that an organization thoroughly researches and understands how to navigates its local employment laws, regulations and any other forms of compliance that may be challenging.

Depending on your business goals, many countries might look for different opportunities from new markets, whether it’s those emerging like Dubai (UAE) or the more established territories, like Japan.

Examples of popular business destinations, include (but are not limited to):

  • Denmark for favorable trade policies and talent
  • Israel for its sense of innovation, recognized as a technology start-up nation 
  • The Netherlands for its connections throughout Europe, the Middle East and Africa.

global office working together

5. Improves Revenue Potential

Eventually, every business will exhaust the growth opportunities available from the home market. At this point, scalability will struggle where opportunities for growth are limited.

Containing your business to its home market is limiting, and you could be losing out on profit potential and further growth opportunities, such as unlocking new talent or a new audience. Global expansion is a kind of tool, capable of helping a business scale and access markets beyond its usual place of operation.

International expansion has become an opportunity to discover, explore and engage new and diverse foreign markets. This opens a business’s product or services to new customers and can even increase sales.

The APAC (Asian Pacific) region has been projected as one of the leading, albeit emergent, areas for business growth, with increases in M&A (mergers and acquisitions) activity and, according to economic forecasts, continues to strengthen exports. This demonstrates how emerging markets can serve the interests of more established ones, such as how the United States has historically traded with Asia.

6. Cost Effective Growth

With specialist support and guidance, setting up a business in a new country can become cost effective. This is because an organization can lower operational costs, acquire more affordable talent for the likes of manufacturing roles, or even expand the reach of products and services to new audiences.

The benefits of globalization unlock opportunities to operate cost effectively, where businesses might, for example, migrate their manufacturing to different labor markets where talent is more affordable. 

7. Enhances Your Organization’s Reputation

One of the key reasons why an organization chooses to embrace globalization is because it can reliably and confidently deliver its products or services to new customers or clients overseas. This step may require hiring new talent, where the likes of language barriers can affect how effectively a company can communicate to new audiences.

Global brands often benefit from a sense of popularity and a reputation for reliability. A healthy reputation globally will unlock new customers and boost your credibility in international markets, which can also help how effectively you attract, retain and onboard new hires.

Global recognition and exposure can reinforce an organization’s success both at home and when operating in overseas markets. Whilst reputation is tricky to measure, the perception of your brand can influence how well your business engages with new and diverse markets.

8. Competitive Advantage

Remaining competitively relevant is an anxiety for any business. Reaching and engaging new markets, even if only testing new audiences, can help your business gain a competitive advantage ahead of other businesses. If the market is emerging, or your home market is becoming too saturated, it may be time to consider expanding overseas before your competitors do.

central business district

What are the Challenges of Globalization?

Whilst there are benefits, the challenges of globalization should not be ignored. As with any growth opportunity, there are risks to mitigate and overcome.

1. Global Recruitment

International markets are promising not only for providing new products and services, but for how they can be used to provide new talent to a growing business.

The key challenge with recruiting internationally is the unknown – associated with markets that have not yet been established or tested. Where there’s a considerable distance between the headquarters of a business and its teams, the challenge of onboarding, interviewing, and retaining talent can quickly become a headache. The problem with new markets is how a specialist will need to navigate the local employment laws, including salary, benefits and other expectations, which may be significantly different than what a business is used to. This means that any existing models of compensation for employees may not be compatible with new markets.

The risk: if you try to onboard new talent with your existing strategy, you may risk operating non-compliantly, and even deter talent. In this scenario, your recruitment strategy will feel ineffective, and your business will struggle to get the full value from an employee.

2. Immigration Issues (including Work Permits)

Immigration challenges can feel frustrating, especially when there is a requirement for different permits and visas before a worker can legally enter the country and commence a job role. The issue lies in how immigration laws change often, and how geopolitics can upset the ease of working in new countries.

The risk: Brexit became an example of how immigration can become uncertain, especially when relationships between countries are restricted. The ease of working in another country should be part of every business’ strategy, because it indicates how effectively you can onboard a new hire, or use expatriation services to send employees to new markets.

3. Payroll Complications

As companies expand globally, payroll complications can cause anxieties internally, especially if a business is required to understand and navigate different tax laws. This creates a management task that can feel overwhelming.

The risk: Compliance is a large barrier for entry into new markets. There’s a lot of risk where a company is operating outside of its headquartered country. For example, a subsidiary in another territory, even within another state, will need to consider which jurisdiction it falls within, and which compliance matters will impact the employees.

4. Communication Can Struggle  

One of the largest challenges facing global expansions is the risk of communication and losing engagement with overseas employees, especially where language or cultural barriers exist. Where languages and time zones will vary how a business operates, firms should anticipate communication risks and plan to work around these challenges. Many organizations are now using tools like Microsoft Teams, or other video-conferencing software, to remain connected and engaged.

The risk: Communication can quickly fail when language barriers, culture, time zones etc. prevent teams from remaining engaged and connected. The problem with communication is how it affects other aspects of a business, including productivity and performance. 

remote global team

5. Perceptions

One of the largest failings of a global expansion occurs when a business does not practically manage expectations – whether that’s for seniority roles, or employees, or even stakeholders. Perceptions can even prevent a business from considering a global expansion in the first place. Whether the misconception regards costs, compliance difficulties, and the daily business operations, the power of perception is enough to hold back a firm’s progress in other markets. When this happens, competitors gain an advantage.

The risk: Unmanaged perceptions can either harm the success of a global expansion, or prevent a firm from committing to an expansion in the first place. Perceptions can regard many areas of globalization, from costs to difficulties with employees.

Who Benefits from Globalization?

Everyone can benefit from globalization if they’re willing to pursue the benefits associated with international expansion. The “winners” are firms who gain a competitive advantage by operating teams overseas and discovering new markets and audiences to engage with their products and services.

Emerging markets, such as APAC or EMEA, also benefit from globalization, where other countries can offer advantages for growing businesses.