Globalization in the Financial Sector

The financial sector, which has to be stable and strong, has a fundamental role in keeping the national economy of a country successful. . In this world that has evolved and it is now globalized, the financial sector needs to be interconnected. Germany is part of the European Union, a fact that facilitates it to have easy access to all the other markets of its neighboring countries in the economic block. This situation has provided the country with a strong structure for its financial sector  and has allowed its financial institutions to conduct businesses from anywhere in the EU (GTAI, 2020).

Globalization has forced companies to constantly look for new tendencies and ways to be recognized worldwide; they need to be informed of all that is going on around the world. Technology has changed the way in which companies worldwide work and has “overhauled the way we do things” (Kolaski, 2018). Nowadays, thanks to fast evolving technological advancements, “we shop, interact, live and research differently from what we did 5 years ago” (Kolaski, 2018). Another aspect that has changed is the way in which companies  face information. Transparency is now a key concept in the financial sector, due to the fact that companies that have been affected by crisis have shown a tendency to recover more rapidly when they have implemented a clear approach (Canals, 2020).

Such new and innovative approach has also impacted the countries in which German or European companies are expanding to. As Canuto poignantly states it, “the global diffusion of knowledge and technology generates positive network effects through cross-pollination”. That is why technology-receiving countries are being enabled to “advance their own research and development” (Canuto, 2018). Business that offer international financial services need and must have a connection with their costumers, no matter how far they are; their employees must “interact with clients quickly and clearly” (OKLAHOMA, 2020) through advanced apps and high quality web sites that allow communication and interaction.  

Technology and globalization have changed not only the way in which companies and costumers relate, they have also had an impact in the relation among countries and on the expansion and evolution of new and young digital economies and new digital technologies that have been produced by globalization (CEDEFOP, 2018). They are causing an important impact in all economies and companies and governments need to connect with their flow and be open to them.  Germany has followed the example of the US and has introduced some elements of a “US-style market-based regulatory system”. Subsequently, large banks have made considerable efforts to build up their market-based activities” (WZB, 2004).

The structure of the financial sector and its behavior not only depends on the financial regulations made by governments which could, in some cases, cause  a “disintegration of the industrial relations system” (WZB, 2004). It also depends on the demand and the supply patterns of companies. The economy of a country fluctuates frequently, a situation that can be seen in determined periods that have been analyzed by economic science to prove that the financial sector is a big participant in the economy. “Germany required large amounts of capital in order to industrialize rapidly, and this was mobilised primarily by banks.” (Daniel Detzer, 2013).

In this sense , the financial sector – that is, the bank system – has had an important role in the growth of the economy allowing companies to acquire financial products in different areas of the EU, facilitating companies to work and improve in order to empower markets. Startups are key in the development of an economy, not only because  “they create new jobs, but they also drive competitiveness and innovation in a social market” (CEDEFOP, 2018). Thanks to startups, the demand for financial products increases and the financial system structure improves, thus creating significant growth in the economy. Evidence based on microeconomic (firm- or industry-level) data shows the benefits of “financial integration” (M Ayhan Kose, 2009).

On the other hand, globalization has also brought about negative consequences that have been experienced differently in each country. As stated before, Germany is part of a well-structured economic and political union and one of those negative consequences is that national governments could, at any given time, “cede to protectionist pressures” aiming at defending the interests of their own countries in detriment of companies from other nations (Canals, 2020). Being part of the EU does not necessarily mean that countries are immune to different crises that can come up, but they are better structured as an economic block. “A more employee-friendly labor market regime in Germany would cushion the impact of the crisis on employment further” (MacDonald-Korth, 2015). 

In conclusion, globalization has had different impacts on the world. The financial sector has adapted to the circumstances that have come up. Globalization in the financial sector has been crucial for the development and growth of economies around the world. As all the economy is interconnected and integrated among countries, all of the decisions and circumstances that come up are going to create an impact all over the world. Germany is an important gateway for the European Union, they are resilient to some international crisis, but as a part of the international framework, they can be affected too.