What is driving globalization?

Globalization is a powerful result of the New World system. It represents one of the most influential forces in determining the future course of business. The term was first coined in the 1980’s. We define globalization as the democratizing of access to local market knowledge, customer information, services, products, and capital across national, cultural, and linguistic boundaries.

As Thomas Friedman writes in The Lexus and the Olive Tree: Understanding Globalization, this new period of globalization started in 1989 with the falling of the Berlin Wall. Before the falling of the Berlin Wall globalization was based on Capitalism vs. Communism.

Three Key Drivers For Globalization

First driver is the commoditization of the Information and Communication Technology (ICT) infrastructure, computers, software, and Internet. According to Friedman, “These technologies are able to weave the world together even tighter.”

This deep global integration sets the stage for the second driver, the development of world trading systems and standards–leading to free trade, removal of barriers to trade, democratization of capital and investment barriers, and knowledge transfer.

These two are now fueling the third driver, economic expansion of emerging markets and new business venturing. Entrepreneurial Capitalism is expanding around the world.

For example, The Global Entrepreneurship Monitor reports that there are more than 500 million adults actively involved in entrepreneurial activities around the world. China and India are two countries leading this pervasive adoption of free-market ideology and the introduction of free enterprise, entrepreneurial capitalism into their societies. In fact, there are more than 100 million entrepreneurs in each of these two countries.

But for this entrepreneurial activity to create any such value, these emerging markets need laws clearly defining ownership and protection for tangible and intangible property rights. Entrepreneurial activity and innovation require strong property rights and rules defining the protection of intellectual property.

It is clear that without strong forms of protection for property rights, many useful products would never be developed at all. We have witnessed that such laws that reduce risk also fuel private equity investments, which in turn elevate economic productivity.