Definition of globalisation: The trend which has seen a seismic increase in trade, commerce, ideas and culture across international borders.
What is globalisation?
Globalisation refers to the idea that as a worldwide civilisation, we are become more inter-connected, more homogenous in our tastes and shared experiences, and businesses are also more geographically mobile.
You’ll see the term ‘globalisation’ used in economics books when describing the sweeping changes to the global economy in the history of the last 200 years.
What triggered globalisation?
In the past, international borders presented large barriers to trade, innovation and trade;
- People couldn’t afford to take a cheap holiday abroad, or didn’t have the time, this meant that people of different nationalities mixed far less.
- Before the internet and TV, newspapers & museums were the only sources of foreign news and history. A citizen could not ‘immerse’ themselves in the culture of another without travelling there.
- Taxes, paperwork and the risks of shipping internationally meant that it was profitable for businesses to stick to their domestic markets. This meant that each country might have its own leader in each marketplace, as there was less competition at a global level.
- People couldn’t easily talk to someone abroad, meaning that people in different countries couldn’t easily collaborate or work together.
- Language was also a barrier. Due to the colonial history of several European powers, there have been several ‘shared languages’ between blocs of countries for over a century. However, literacy rates were much lower and therefore many citizens would not learn a second language.
During the 20th and 21st century, the following developments occurred which triggered globalisation:
- The internet provided cheap means to effectively communicate and coordinate between foreign subsidiaries of the same holding company.
- Language translation services became effectively free and much more accurate
- Literacy rates improved worldwide, such that a large proportion of the world can speak either English, Mandarin, French or Spanish.
- The cost of labour increased steeply in developed economies. This created a large financial incentive for businesses to begin outsourcing activities to emerging markets such as China. This increased the volume of trade and commerce between countries separated by vast distances.
- Developed corporations began to saturate their domestic markets and looked abroad for new sources of growth. This led to a great homogenisation of retail and food outlets across the world, such as Starbucks and McDonalds now featuring in most outlets.
- The rise of streaming services and online video means that most markets experience new releases of content such as blockbuster films, music or social media memes at the same time, leading to the sense of a more cohesive global experience.
How is the word globalisation used in a sentence?
What else you should know about globalisation
While globalisation has been an unmitigated success for the industry, it isn’t universally seen as a good thing by all workers or members of society:
Citizens who are proud of their nations unique identity and culture have been sensitive to the influx of new brands, foods, media and ways of life brought by this wave of globalisation. This has recently triggered a surge in populism among some voters.
Now that we see a lot more of other countries, we want to visit them too. Beauty hotspots such as Venice in Italy have been overwhelmed by the number of tourists which pour into the city each day, leading to a backlash from residents. The impact of this travel on climate change is also markedly negative.
How does the definition of globalisation relate to investing?
A good investing book or investment course will suggest that you invest across a broad array of geographies to protect your portfolio from shocks or blips which impact a local area. Examples include regional recessions or natural disasters.
By investing internationally, you can benefit from the economic growth rates experienced by other economies. You no longer need to be constrained by the disappointing returns of your own domestic stock market.
International accounting standards such as IFRS means that major listed companies worldwide present their financial statements, such as their balance sheet and income statement using similar rules. This will aide comparison of KPIs and other information between two international rivals.