Effect of Globalization on Small and Medium Enterprises:
Before starting out on the in-depth study of globalization, its dynamics and how they are affecting the small and medium enterprises around the world it is necessary to understand and the true definitions of Globalization. Another big part of this report will be trying to understand the fact i. e. changing definitions of SME’s around regions and countries. This is why a neutral definition will be reached to and used for the rest of the research.
Globalization: According to Meriam-webster Dictionary Globalization is the increased integration of economies and countries / cultures around the world. The source continues to discuss that the focal points of this increased Globalization has been marked by free trade, technological developments that have made transfer of technology, trade and movement of people within countries easier and requiring less amount of time and money investment.
It goes on to discuss that free capital and cash flow around the world has allowed investors to move freely in search of cheaper labors and input as and when required. Globalization has been the topic of discussion over the last many decades and people have based whole of their policies and election campaigns around it. It is a source of discontentment for
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According to an article on Investor Words people especially in democratic countries feel strongly about the process of globalization as they believe in the freedom of speech and thought and they believe that it can best be integrated with the process as people get to know more about their surroundings. This process will also help the people in having a better view of the world around them and get a good overview of the economic and political situation resulting in a more learned view of the world.
According to Porter (2008) before the formulation of the latest integrative definition people thought globalization was in effect when different nations exchanged goods 1000’s of years ago but in reality the real globalization started with the buildup of technology and the end of cold war era. It was a real move towards the increased integration of the world cultures and a decade of peace for the world existed which was a big contribution to kick start this process.
This decade and this time is being called the Era of Globalization, Big powers like China and other communist countries are also giving importance to this movement that will describe the past and future as we perceive it and globalization has been called a movement and something bigger than the space age, the cold war era and the bad time of the great depression. Where the common perception is that globalization is concerned with economies and cultures only, according to article in Encarta it is a misperception and the biggest benefit of globalization has been the increased social work being done by people around the world.
Today social workers are moving without problems and understanding cultures to help them out survive in a better way in the world. The aboriginals of Australia and the tribesmen of Africa all are being taught and given a better life by social workers and researchers that are for real interested in them and want to protect the heritage and uniqueness that they provide to the world. As explained earlier globalization becoming the Buzzword that it is today is because of its economic importance and role that it is playing in the development of the world around us.
According to Balakrishnan (2004) Global Economy that exists today has increased the importance being given to free economies and the theory of market forces which dictates that if left on its own the demand and supply conditions would set the right and the most efficient price that would fulfill the needs both of the supplier and the consumer. This process of globalization has brought upon a new decade for the people of developed countries and the small and medium enterprises around the world Balakrishnan explains.
It is because of the fact that lesser costs allow the SME’s to easily send their products to where ever there is a market and innovate for the markets as today with the new WTO regulations markets are open worldwide until and unless special or specific directions are given against a certain product. These kind of developments coupled with the Technological developments that are happening around the world are acting as an impetus for both the Developing countries and the Small and medium enterprises wherever they may be.
Keeping this in mind we shall move forward to Discuss the Small and Medium enterprises as their definition keeps changing and will try to form a position towards them so as to be able to discuss them in more detail. Small and Medium Enterprises: As explained earlier it is a business term that is used differently in different countries and the dynamics of it can change over time and with industries relative to the country’s economic policies and governmental regulations (Business Dictionary).
In America there is no specific discretion given and according to the definition some very large firms may also be called an SME because of the size or number of employees it may involve and the legal protection that it may have asked for from the court because of its industrial or future dynamics. According to the SBA i. e. the US small business management department the size standard is always stated by them in the normal standard of employee number and maybe the total revenues that a sector maybe earning. The bottom line is that SBA has defined size standards according to the industry and they can differ from time to time and as required.
The size standard dictates that a firm will be small if it has 500 or less employees in a manufacturing or a mining and quarrying concern. While an SME in a wholesale concern cannot have more than 100 employees. A retail industry concern should not have revenues above 7 million to be explained as an SME concern and get the perks related with such an industry. It carries on in the same way and we can get a feel of what is needed to be called an SME and that these definitions can vary with time and industries across the board.
If we keep Europe and UK in view according to the European commission (2005) there are 3 kind of SME’s the micro, small and medium kind. A micro enterprise will have less than 10 people working for it and a revenue that does not go above 2 million Euros. If surpassed Small Enterprise is any company that does not have a head count of more than 50 people and an asset base of 10 million Euros while medium enterprises are checked by the maximum headcount of a 250 people and the maximum revenues of 50 million Euros.
Most developing countries have set up their control specification and countries like India are already setting their own policies of SME definitions. These definitions though not as close to the American sector wise research based view points are very much like the UK and Europe based headcount and revenue based regulations. Though these kind of policies have their pros and cons and some capital intensive industries can use them to their benefit and to mislead the government but a line had to be drawn somewhere and no better way but this.
Now that we have a brief over view of what SME’s are and the importance they have been given. This importance has resulted in the special research and definitions of SME firms arising in different countries and sectors around the world. Taking on from there we would try to condense the ideas of globalization and SME build up around the world and how Globalization as a whole has affected the future and present of the new and already formed SME’s that are operating around the world. Small and medium enterprises and Globalization:
As explained earlier today small and medium enterprises have become a major lifestyle improver and have affected our daily lives in a great way. Not only does it have an importance in the socio economic position that we find ourselves in but the biggest effect has been taken by the major businesses and the small and medium enterprises around the world. The globalization has changed how we are used to managing our daily business and how managers see their daily management practices. So everything must have changed for the Small Businesses around us.
Keeping that in mind we can learn more from what Downes said and was mentioned in Recklies (2007) that the greatest strength of everyday business for an SME is the close ties that it can make with the everyday customer and associate with them in a manner that creates value and makes loyal customers. This greatest strength becomes a little difficult to maintain with the fast life and dynamically changing situation as the business move outside the countries and their customers move away from them as well.
The situation is also completely changing because of the more product varieties that are becoming available in the market as innovation starts to jump into play around the world and people from all kind of backgrounds especially with businesses get an easy route to play a part in the global economies. Where Businesses are getting a bigger role to play in the total situation according to panday (2007) today they also have greater responsibility both in the ethical and the technological backgrounds products can have, pursue and tap into.
It is so because today Small and medium enterprises will easily be copied and lose their niche quality as different products move into all kinds of markets and countries. Where businesses have a role to play and small businesses have the ability to make it big in the world because of their niche qualities they will also face bigger competition in the total scenario. It has precisely been due to the Globalization taking place that today countries like India, Slovenia and Small countries like Kazakhstan and Ukraine are able to compete in the services and software industry worldwide with big players offering their own service.
Due to the opening and the increased democratization of the economy Small businesses are increasingly getting a role to play in the economies and the markets for the products that they are offering. This is why the quote “Think Global, Act Local” was made famous because today the world is our home; this world has become a Global village and whatever we do changes the total situation that we can be in. Zaccai (2005) persuades all the business owners around the world to think local but also try to understand the global scenario so as to tap into their products full potential and get as much out of their investments as possible.
Zaccai gives the example of Coke which is a global brand but embodied the local culture wherever it goes and although it is true that Coke is not a small enterprise, the predisposition here is that the policy followed by Coke can work for anyone, especially for SME’s operating in a global environment where they can move into newer regions to tap into the resources, increase their revenues, quickly grow their companies and achieve industries of scale with all the new markets that they step in.
Why this is so important for small and medium enterprises is because of the fact that Brands have an aspiration value and wherever they go they can get followers trying to associate with the cool factor associated in each and every brand which lets the owners bring out a certain personality while this is not the case for a small company owner who sits somewhere else, sees an opportunity and moves into a new market. He or she has to understand the dynamics to succeed and act as an efficient enterprise that understands and is ready to pay its regards to the culture that has decided to take its services and welcome any products brought out.
According to Zacai for smaller companies to provide the maximum value that would help them achieve delighted loyal customers they must provide localized version of their best products and though they cannot have personal relations which small business are best known for they can still create touch points with the customer by developing extensive customer service techniques and constantly staying in touch with them about what they feel about the product or service giving them the we care for you feel and showing them the importance using the you attitude (nordquist).
So what we learn is that where globalization has given new opportunities to the Small and medium enterprises to grow and muster up more profits at the same time it has also put them in danger of losing their customers and unique selling propositions because of the increased number of competitors that are stepping in the market. The stakes have risen and it is becoming increasingly difficult to make profits in niche markets as well because of the rising number of substitutes with slightly less or more characteristics that are offered.
According to kroeger (2006) this form of local to International competition integration that is taking place due to the increasing globalization is called International Localization of competition and it is the new way competition is moving around the world. Today markets around the world are open to investors with a little change of culture and managerial policies that must be taken care of. Consumer and Globalization:
Globalization and increasing integration of the world markets and cultures have also changed people buying behaviors and how they react to new products and services that are offered in their culture from a global company or when a global product is offered to them by a company which maybe from the local environment. According to Frost (2006) today we all have become next-door neighbors with increasingly alike tastes and interests. But will we get more adventurous with our tastes and criteria’s or are we moving towards the same known consequences.
The result according to Frost is that though we all are moving towards similar interests and a resurgence is occurring in personal choices but at the same time an increasing regard for personal heritage and culture is occurring and the decade of consumerism and brand association is ending into a decade of ether as explained by IMF according to which although increased cultural homogeneity is how we see today’s customer but a new respect for heritage and one’s own culture has come up.
According to a research that has been talked about by Frost (2006) shows that people are showing an increasing faith and trust in local products under the onslaught of foreign and multinational products. It’s like the societies are balancing themselves with time. He has explained it as not a backlash rather a balancing act that all societies engage in. Frost goes on to explain that this balancing act may also be occurring because people are increasingly feeling the brunt and feeling bored of the same brands over and over again.
They want something different; a good example of this getting bored of people can be viewed from the fact that travelling around the world we see the same brands again and again. So what we learn from these research and academic articles is that globalization is affecting the landscape for small and medium enterprises. Everything is changing very quickly and SME’s need to find ways of managing the businesses as well as staying in touch with the consumer and cultures that they may be operating in so as to use the culture and the changing consumer preferences to their own benefits.
Globalization is changing the way we see the world and we should put in place controls so as to take out its full potential and for SME’s to succeed they need to understand the pros and cons of this development and put it to use so as to exploit the positive and mitigate the negatives and threats. Advantages of Globalization: 1) According to Gedde (2007) globalization has reduced the cost of doing business abroad for small and medium enterprises and allowed the business owners to easily move out of their jurisdictions and use the international scenario to their best.
2) Due to the free flow of cash and capital the investor or business owner has more resources at hand to use and tap into for the best and use the best resources at the most less cost to add efficiency and industries of scale to its use. This will allow the Small and Medium enterprises with relatively less funds to develop out of areas where the input costs are low and manageable. 3) Due to the free flow of capital it is one way of developing new markets and the bottom of the pyramid.
It will allow you to tap into the total thread work of the global society and earn more margins from areas where a product developed by an SME is seen as comparably new and unique. 4) According to Dtribne the world’s way of working is changing and we are moving from a world where the big would eat the small to a world where the fast eat the slow and size or considerable power difference does not matter anymore. 5) As increase in globalization happens according to the latest statistics over a decade commerce has moved up from 15 to 27 % as a percentage of the total GDP in the world.
This is a good news for SME’s which shows that increasing opportunities for intertrade and commerce are arising in the world. 6) Due to increasing integration in cultures many of the products are becoming useful around the world which could not be used before. A good idea can be taken from the increased sales of Viagra and birth control pills. As it is not a taboo anymore to use them even in married couples and cultures try to understand each other (Daniel, 2007).
7) According to Strauss (2004) globalization is exceptionally good for small businesses because they are flexible and agile. Can change their strategies quickly and increased globalization has made big companies outsource their side processes to these companies. So globalization is a tool to increasingly align big businesses with small and let them grow on their funds. Disadvantages of Globalization: 1) Because of the growing competition and ease of access bigger businesses can easily consolidate and eat up the smaller business.
Small businesses have lesser funds and this can be a problem as large business can afford smaller profits and margins and still remain in business because of better researching abilities and understanding of the markets (ford 2009 p. 55) 2) According to Ruud (2007) because of some of the increasing productivity that has resulted from globalization and increased consumerism that is taking place some cultures and environments are disappearing as people move towards the money. This is not sustainable and for immediate profits businesses are forgetting the long term situation.
3) According to Kellner (1997) with increasing globalization it would become more difficult for newer and smaller businesses like family and heritage businesses to establish survive and find labor for them. This would automatically result in the death of these otherwise potential culture invigorating businesses. 4) Because of the rising pay needs in developing countries as bigger companies coming from abroad offer products and higher salaries. People are not ready to work for smaller companies resulting in the atrophy of labor for the smaller businesses.
5) Due to increased supply and demand battle, costs may go up for inputs and create problems for the resource battle that exists between companies for their utmost important survival. Conclusion: Globalization is a disease; people mostly in the world are obsessed with it. It does not matter what people think at the end it is all about what you think because there is no one side that can be taken as there is a hefty amount of arguments for and against this side of reality.
Whatever someone says the end point is that globalization has become a reality and the global world needs to put in controls and policies so as to augment the negativities and try their best to exploit the positives and bring better opportunities for the people of the world. The same goes for SME’s, According to a research report 8 out of 9 exporters are small businesses which tells us the importance of this business for developing countries and small businesses and it also shows the prospecting potential of globalization for small business owners around the world.
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