The risk of globalization for smaller firms

Globalization has costs and benefits. A couple of examples of poorly monitored economies. (eg when countries opened their economic edges before they had the capability to act in response well) but there's also examples of well monitored countries thatengage well with international community.

Many governments and supranational specialists have committed themselves to encouraging trade in the world economy and further lowering poverty through the Millennium Development Goals (MDGs) and are cooperating jointly to work out smart ways to manage globalization because of their smaller organizations /countries' success in the world economy. With the analysis of the strategic management in the global competitive enviroment.

The reason for this statement is to evaluate the procedure of the proper management of smaller companies by governments and supranationals in the global competitive environment.

Introduction and Background

What is globalisation?

Globalisation can be explained as the greater activity of individuals, goods, capital and ideas anticipated to increased monetary integration which in turn is propelled by increased trade and investment. It is like moving towards living in a borderless world.

There has always been a showing of goods, services, knowledge and civilizations between people and countries, however in recent years improved technology and a reduced amount of barriers means the swiftness of exchange is much faster. Globalisation provides opportunities and issues. Bigger markets can mean bigger gains which brings about greater riches for investing in development and lowering poverty in many countries. Weak local policies, corporations and infrastructure and trade barriers can limit a country's capability to take advantage of the changes. Each country makes decisions and procedures that position them to increase the benefits and minimise the challenges shown by globalisation.

( www. globaleducation. edna. edu. au)

In a global economy, characterized by a high level of changes within the last couple of years, we can say that the entire world does not appear any more like it was in the past.

Indeed so many transformations have been done in terms of government restrictions, business, telecommunications, technology, research and development, customer's needs and preferences, reduction in obstacles to free trade and the entire world with all these factors have led to a great convergence.

"All these transformations are leading our countrywide economies into a global system or a worldwide current economic climate, i. e. an independent, integrated global economical system therefore an activity that we can make reference to as globalization. Hence, in the era of the globalization, it has been inevitable for countrywide businesses to globalize to be able to get for case some competitive advantages, economies of scales, more market share, better skills. Indeed, nowadays, wherever a firm operates, theses products or services would find some international opponents. " ( Hill, 2006),

The impact of globalization on small and medium enterprises (SMEs) has received a whole lot of attention in international marketplaces before few years. Today, globalization is a major driver that has effect on almost every business. One of the known reasons for the international concentrate on SMEs is these firms make significant contributions to the economy of both developed and under-developed countries. SMEs add over 55 percent of GDP and over 65 percent of total career in high-income countries (UNCTAD, 2004). In Middle and East Asia for example, SMEs are major players in their countries current economic climate; accounting for an increased percent than what it signifies in the expanding countries.

Globalization has that much impact on business forces which have added more individuals to Porter's five Makes. One of these new motorists running a business life was reviewed within an article by Larry Downes in "Beyond Porter" says that "technological progress in logistics and circulation enables practically every business to buy, sell and cooperate on a worldwide scale. Likewise, customers have the chance to compare prices internationally and discover the best bargain". Many SMEs are now looking to 'go global'. The markets are more accessible than previously. However, most SMEs are finding it difficult to understand the art work of market entrance, leading to heavy loss.

Globalization has increased competitive pressures on firms. As well as rapid technological change it has altered the environment in which SMEs operate. The bottom line is that, in an wide open and liberalized world, increasing SMEs competitiveness has turned into a major obstacle.

Globalization has also expanded competition both geographically and new areas. Competition between companies was mainly on products and services, at least to the degree that marketplaces were protected from overseas competition.

There is a wealth of economic evidence that demonstrates that globalization brings great benefits as well as costs. It offers the ability for a higher rate of sustainable growth- development that results in longer, healthier lives and better living specifications. But, if we take a look at another aspect of picture then it has been established that a few of the competitive obstructions often faced by the tiny fish in the top ocean. Compared to larger businesses, Small and Medium-sized Corporations (SMEs) are generally less well-equipped to handle boosts in international trade. Due to their lower output, many have found it difficult to compete. Also, given their limited resources, they have found it more challenging to take good thing about removing tariff barriers.

Global markets are more integrated with an increase of free flow of information, goods and services and migration. Because of globalization we have seen the rise of the impact of large multi nationals, to the detriment of Small and Medium Businesses.

In response to this threat government authorities and supranational specialists have designed programs to safeguard and support these small firms to allow for their survival.

Threat of globalization

The increasing interdependence of countries in a globalised world makes them more susceptible to economical problems for smaller businesses like the Asian financial crisis of the past due 1990's. (J. O Ajiboye, Adeyunke Tella University of Botswana)

Smaller firms will find it difficult to contend on the global level as they lack the financial and technical resources that multinationals have. Additionally they lack the economies of range which results in less expensive per product for the multi nationals.

Pricing could be a challenge because the smaller firms are likely to have high costs per device. Larger businesses have the capacity to undercut the smaller firms prices as a consequence of this competition between smaller and large organization would erode margins of smaller companies and some of them would conclude making loses and winding up.

It would be problematic for smaller firms to attract an experienced work force because multi nationals have the capacity to pay better plans as they will have more money. This would cause difficult for smaller firms to operate proficiently and effectively.

High promotional, advertising and branding costs are a hurdle to entry for small firms

Cultural and spiritual factors can also influence competitiveness of small firms. For instance, in countries where Islam is a prominent religion in which rigorous adherence to halaal standards is a necessity, small firms could find it difficult to penetrate the market or even to endure in such market segments.

Import limitations can also impact small company competitiveness. For example, in a few countries such as Egypt, where there is an transfer ban on raw materials small firms may find it difficult to penetrate in such market segments without a varied global market basic. Smaller firms could find it an effort on the global market in terms of get together certain international criteria imposed by certain marketplaces.

Export restrictions could also pose a challenge. In some marketplaces there are restrictive export polices which, smaller businesses find difficult to comply with e. g, small firms in Africa exporting agricultural produce into European marketplaces such as honey or paprika.

Membership of your Trading blocs such Common Market For Eastern and Southern Africa COMESA, Southern African Development Community SADC and the European Union EU, inter alia, could be another source of hindrance to smaller firms. Countries that are not people of such trading blocs could find it difficult to operate with member countries.

Further other federal procedures such as high taxes are a disincentive to investment. Small companies are likely to be affected by such taxes.

Unlike multinationals, small firms will probably suffer forex losses. This is because small firms may not have capacity to hedge against such deficits. Multinationals, operate in different markets and can certainly cushion such results.

Multinationals have the capacity to create better and cheaper goods consequently of the superior learning resource endowments such as modern tools and have larger budgets for research and development as compared to smaller companies.

Purchase Vitality Parity is another factor to consider e. g, multinationals can procure inputs in countries where the currency has an increased PPP.

Globalization poses new troubles for SMEs by leading them to at least partially assimilate the consequent notion of global change in their strategy. The growth of markets does not mean that only large businesses can profit fully from this trend. There is absolutely no relationship between large market and large business. Whatever the cost, to encourage the competitiveness of large nationwide businesses. A seafood that has been bigger and bigger in its fish-pond will be consumed when it gets to the sea; it is better to instruct it how to battle when it is small such that it can deal with your competition, wherever it is.

On the other hands, the internal factors constraining the globalization of SMEs are insufficient experience on their part, insufficient resources and an increased belief of risk. The major external factors are national information networks that are limited or poorly linked internationally, deficient complementary regional resources and assistance programs that are maladapted to SME requirements. In a number of countries, the positive factors seem to be gaining ascendance on the negative.

The lately completed (1996) OECD analysis on market globalization and SMEs shows, on the main one hands, that the major factors sustaining or accelerating SME globalization are just as much a result of the inner dynamics of smaller businesses as of environmental support. In the first instance, searching for diversified progress, specific innovation-based production, and open-minded management capable of engaging the correct specialized resources, go a long way toward detailing the tendencies of internationally open SMEs. The situation of the environment presumes effective regional consulting, financing and logistical resources to aid exports. (Pierre-Andr Julien

Universit du Qubec Trois-Rivires )

How Governments and other supranational government bodies support small firms

In order to aid the small firms from the dangers of globalization government authorities and other supranational have designed programmes to safeguard them as explained below.

Examples of Supranational corporations that deal with such programs are: Government authorities, COMESA, WTO, World Bank, AU, SADC, UN, ECOWAS, EU etc.

Government support:

Some of the several programs that must definitely be designed include

Favorable bilateral and multilateral trade contracts which, support positive trade amounts must be instituted by governments. This may ensure the expansion of small organizations thereby adding to overall country progress.

Governments should use their political affect to lobby for tranquil trade.

Providing loan warranties to small companies. A few of these guarantees involve partnerships with private lenders or multilaterals such as the World Loan provider. Such insurance policies help small firm have access to finance.

Governments also offer incentives and subsidies to allow the smaller organizations contend on the international markets e. g. the Government of South Africa made deals with the Government of Zambia to allow a tax discount around five years also the European union also subsidies small scale farmers in the European union.

Governments should add duty rebates on certain areas of the industry e. g. in Zambia agricultural inputs are have zero tax to bring in to the country to encourage more folks engage in to agriculture and overall boost the overall economy for exports.

Governments may devalue its currency to increase export volumes by allowing its exports to be cheaper e. g. China and Japan are practicing this. This will however be done carefully recognizing that it can be inflationary.

Government should institute guidelines that encourage home trade through relevant economic and fiscal plans.

Government should encourage guidelines that support reduction of borrowing costs. Legal enactment of credit works must be urged to protect the buyer.

Government should provide grants to economic providers for capital shot.

Government should encourage firms like the Zambia Development Company which to provide support to help small and medium businesses are more innovative, reliable and competitive by having a nationwide network of services and support for entitled SMEs to gain access to expert, useful advice and support designed to their individual firms.

4. 2 Supranational Support includes:

Supranational government bodies should introduce grants, loans and funding for small economies to encourage creation and trade among countries.

Supranational should endeavor to help less developed countries by revealing internet marketers to the international market segments.

Supranationals should aid trade expos to activate trade. eg traditional indigenous artifacts have found their way to the international marketplaces.

Fair trade plans play a greater role in safeguarding trade, fair and secure price and institutes like the WTO should encourage this.

Forums are another system that these establishments have introduced to give a words to the voiceless on issues of monetary development e. g. G8 are motivating world trade by adopting certain polices.

Examples of supranational and their impact on globalization:

4. 2. 1. a International Monetary Account (IMF)

The IMF is a sister institution to the entire world Lender in the US system. It shares the same international account and the same goal of increasing living standards in its member countries. It works to foster global financial co-operation, secure financial stableness, help international trade, promote high work and sustainable economical development and reduce poverty.

4. 2. 1. b World Bank(WB)

The World Lender Group's objective is to struggle poverty and improve the living standards of folks in the growing world. It is a development standard bank which gives low-interest loans, interest-free credit, grants, policy advice, complex assistance and knowledge sharing services to low and middle-income countries to reduce poverty. THE LENDER promotes growth to create jobs, and also to empower the indegent to take good thing about economic opportunities. THE LENDER is strongly committed to the Millennium Development Goals which target poverty. (www. globaleducation. edna. edu. au/. )

4. 2. 1. c World Public Forum (WSF)

The World Public Forum (WSF) can be an amalgamation of several political/social moves from around the world. It was intended to openly discuss alternatives to the model for globalisation designed by the earth Economic Forum, large multinational corporations, National Governments, IMF, the entire world Bank and the WTO. It is working to illustrate that the road to lasting development, interpersonal and economic justice lies in substitute models for people-centered and self-reliant progress, somewhat than in neo-liberal globalisation. (www. globaleducation. edna. edu. au/. )

4. 2. 1. d World Trade Company (WTO)

The World Trade Corporation (WTO) is a worldwide international organisation interacting with the guidelines of trade between countries. At its heart are the WTO agreements, negotiated and agreed upon by the bulk of the world's trading nations and ratified in their parliaments. The goal is to help suppliers of goods and services, exporters, and importers execute their business. (www. globaleducation. edna. edu. au/. )

5. 0 Conclusion

More and even more SMEs are availing themselves of new materials and immaterial technology to increase their efficiency. They may be innovating to lengthen the useful life of the products or even to change the products. They can be associating with large businesses or working in networks to boost their strike forces. These networks provide them with international information to avoid them from being outpaced by change. But given the restrictions of globalization, some Government authorities and supranational can have SMEs break away from increased competition by placing them in specific niche categories. Globalization can provide as much opportunities for energetic SMEs as hurdles for the ones that lag behind in modernizing their creation processes or developing these niche categories which can provide them at least short-term shelter from the pressures of new competition.

There are cultural and economic costs to globalisation. Trade liberalisation rewards competitive establishments and penalises uncompetitive ones, and it requires participating countries to attempt monetary restructuring and reform to help smaller organizations.

Some countries have been unable to take advantage of globalisation and their standards of living are dropping further behind the richest countries. The space in incomes between your 20% of the richest and the poorest countries has grown from 30 to 1 1 in 1960 to 82 to at least one 1 in 1995 (www. globaleducation. edna. edu. au/. ).

The major monetary powers have a major effect in the establishments of globalisation, like the WTO, and this can work contrary to the passions of the producing world. The amount of agricultural cover by wealthy countries has also been believed to be around five times what they provide in help to poor countries.

Trade liberalization and technical advancements change the overall economy of an country, destroying the traditional agricultural areas and allowing cheap imports of created goods. (www. globaleducation. edna. edu. au/. )

References and Biography

www. globaleducation. edna. edu. au

www. worldbank. org/

www. forumsocialmundial. org.

www. wto. org/

www. ausaid. gov. au/

Michael Porter

Johnson and Scholes, 1993

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