Small and Medium Enterprises in Globalization Era - Essay Example

Small and Medium Enterprises in Globalization Era Abstract The world economic activities are subject to changes in the globalization processes. Globalization is also the driving force behind many small and medium-sized businesses. This work asses the impacts of globalization on small and medium-sized businesses and recommends the best approaches to make the process beneficial for both the small and large-scale businesses. For this work, there is a need for developing an understanding of both globalization and small-scale enterprises and their relationship with the economy of the world (Prasad 1999, p. 4). There is no globally accepted definition for globalization, but for the purpose of this research, the term refers to the process of consolidating the world into one large market (Prasad 1999, p. 2). The process avails many goods and services to people across the world with the removal of trade barriers among the trading nations. The process of globalization happens through three channels; flow of capital, flow of finance and the trade in goods and services (Prasad 1999, p. 3). There is also a thought that the same process would mean integrating the economy of one country with the rest of the world. As much as integrating the economy of one country with the rest of the world could mean good for the nation’s economy, the same process would mean a great deal of unfair competition to some businesses (Young and Crick 2004, p. 30). For a better understanding of such an argument, there is a need to consider a scenario where a starting firm from a developing country competing in a giant multinational. There should be an understanding of the contribution of small-scale businesses to the economies of such countries. For most of such nations, the industry forms a critical part of the performance of such economies, which calls for a comprehensive policing strategy that will ensure their sustainability. Therefore, the current study analyses the impacts of globalization on the performance of small and medium-scale firms in the sea of the world’s economic powers. The main theme of this work is to weigh the performance of small businesses before and after the invention of globalization and determine the effects of the processes. Introduction Globalization signifies the process of liberalization and internationalization that transforms the world into a small village because of the effects realized (Young and Crick 2004, p. 40). There has been a rise in the levels of competition in every field with all nations across the globe engaging in global wars to make their economies sustainable enough for the populations. As soon as the world economy transformed into a global village many nations sought methods that would ensure the sustainability of their economies. For some of them, there was a consideration for the importance of small-scale firms in on sustaining the work force and production of essential goods and services. A deeper analysis of globalization reveals it as having four fundamental parameters. The first is the abolishment of trade barriers and the permission of free flow of goods and services among countries of the world (Pollard 2003, p. 445). The second is the enabling an environment in which free flow there is free flows of capital among trading partners. The third factor is facilitation of the flow of technology especially from the developed countries to the developing ones. The last composition of globalization is the creation of an environment that allows free flow of labour from one nation to another (Prasad 1999, p. 4). As such, there is a consideration that the process could mean both advantages and disadvantages for many small-scale firms. Objective of the Study Having defined globalization and analyzing its components, the main purpose of this work will therefore be determine the impact of globalization on development of small and medium-scale firms. More specifically, the research will focus on: 1. Expounding the globalization framework, small-scale business development across the globe and the effect of the trends realized on trading activities. 2. Determining the factors that hinder the process of integrating small businesses into the global economy 3. Weighing the effect of globalization on the power of small enterprises to create job opportunities for a majority of the population 4. Ascertaining the best recommendations that would integrate both the small and large-scale businesses Rationale of the Study This study will benefit businesses, the society, and the government because of the relationship between small-scale firms, the economy, and the social wellbeing of the people. Owners of businesses will learn how to position there activities so that they have a global appeal because as it stands, there is a need for all firms to embrace the trend. If the firms embrace the process of globalization, they will expand their market base and make more profits. In the event that corporations make enough profits, they will have the power meet their obligations to their stakeholders. The government will generate more taxes from such institutions and use the revenues to provide essential goods and services as well as creating job opportunities for the people. Conceptual Framework Many scholars of diverse interests wrote about globalization, development, and small and medium-scale businesses, and formed varied viewpoints concerning globalization. This section concerns an analysis of some of the concepts. The Concept of Globalization As mentioned in the introduction, there are ample definitions for globalization, but none of them has an international appeal. The reason for such is that every definition focuses certain universal preferences, which may not apply to others (Ucbasaran and Westhead 2007, p. 30). The economists perceive the process as a way of increasing interstate division of labour and the associated integration of economies of various countries using trade, goods, and services. In such a perspective, globalization is a phenomenon in which separate national markets transform into one global marketplace and consequently, resulting in internationalization of the process of production. That implies that firms source goods and services form varied locations around the world while taking advantage of national qualities and costs of factors of production such as energy, capital, land, labor, among others as though it were one market. Globalization is the diffusion of economic innovation across the globe and the cultural and political adjustments that accompany the process (Ucbasaran and Westhead 2007, p. 35). To other scholars, the process would mean the interconnectedness of modern civilization that may include social, cultural, and political systems. The process of globalization includes the internationalization of production, a new environment, which is competitive, international division of labor, new migratory movements for the labour force, among others. The Concept of Small and Medium-Sized Firms For the countries in transition and the developing nations, measuring their globalization performance involves their level and the speed of their consolidation into the global economy. There are two items, which seem of critical importance here. The first is economic growth and the second is the quality of policies instituted (Hammond and Gupta 2005, p. 305). Three factors affect the speed of integration of such economies; those concerned with macroeconomics, foreign direct investment, and trade. Such policies have the effect of increasing the growth of a given economy as well as ensuring its stability. Governments need to reform their role and establish rules and features, which include transparency, openness, and credibility in their administration as well as reducing bureaucracy (Hammond and Gupta 2005, p. 300). Such are moves that target to integrate small and medium-sized businesses globally. An introduction of these characteristics and rules will create a conducive environment for the efficient functioning of the forces in the market, which are critical for developing the private sector. Additionally, such moves will reduce risk perception and therefore, help in attracting investments. Provision of sound investment climates does not only yield important benefits as it concerns the performance of the economy, but also improves their ability to create new jobs. In so doing, such institutions help in alleviating the social costs for structural reforms in the future. The globalized market perspective disadvantages some businesses not just in the volumes of sales, but also for capital invested (Muzychenko 2007, p. 366). Such firms depend the performance of the market in the wake of stiff competition from giant multinationals. Small and medium-sized companies do not have as strong market bases as the giant entities, something that does not give them a competitive edge. The firms at times do not have enough research into the marketing structures and therefore risk a great deal. New and flexible systems of production brought about by globalization and the competitiveness of businesses result in a concentration by firms on their core competencies. Outsourcing of no-core events lead to opening of new opportunities for small-scale industries. Ability of such small-scale corporations to react to the changes in their environment enables them to take advantage of prevalent situations to improve performance (Muzychenko 2007, p. 377). The Advantages of Globalization to the Small and Medium-Sized Businesses Globalization is still a very recent phenomenon for most small and medium-scale businesses. That is to mean that until recently, buying and selling on the global markets was an undertaking of the largest firms in the world and was only possible with intermediaries. On most occasions, such intermediaries were global trading companies that shared common features worldwide regardless of their countries of origin (Crane and Matten 2010, p. 55). Most of such companies were large with the financial power to run the globalized affairs. In contrast to the popular myth, most of the activities conducted between the global companies and their overseas partners occurred through open account. By open account, it means the distributor needed to be credit worth for them to receive products on credit upon completion of documentary drafts (Crane and Matten 2010, p. 64). There are two factors to consider for this case. The first is the idea that only the big companies could afford such activities and the second is that procedures were complicated. However, the situations have since changed and the corporate business has open platform for learning and competition (Wright & Westhead 2007, p. 1015). It now means that firms can learn from the pace setters in the trade and do not have to spend much capital in contracting intermediaries. Such is possible because of the use of the internet, which enables an interactive platform for the business people. There is also a shift of the technological innovations and inventions especially from the developed nations to the developing ones. Such a phenomenon bears remarkable outcome as it concerns production and marketing of produce. As mentioned, small firms do not have the financial muscle for investing in heavy research and technologies. For this case, they depend on the larger firms to lead the way upon, which they benefit immensely and use the information gained to improve their operations. It is worthwhile mentioning that most of the research findings are usually expensive for most of them to afford. Proponents of globalization argue that the fact promotes economic growth of the globe (Stalker 2000, p. 45). Such a fact emanates from the fact that people interacting across the globe and work jointly to make trading easier. The idea also increases competition for companies considerably because of the interaction of more goods between customers and companies. There are higher set standards for quality that make the companies to work hard to ensure that they attract and maintain customers (Jones 1999, p. 23). Consequently, the high levels of competition make the companies to work hard at upgrading their businesses. If other factors hold constant, there is the fact that the higher levels of competition will make the companies better. In the process of upgrading, some firms create more job opportunities for the people as well as making goods more affordable for the community (Christmann and Taylor 2001, p. 450). Most developing nations do not have the capital to invest in multinational corporations, which makes the small and medium-sized companies a better option for economic development. Such matters provide the poor countries using the infusion of foreign technology and capital, with an opportunity to develop economically and spread the same prosperity across the people. The Disadvantages of Globalization on Small and Medium-Sized Companies As much as there are advantages of globalization, there are also setbacks for the same. The Fact that one of the characteristics of globalization is liberalization makes the economy too open for some of the companies. Such a scenario compromises the fact competition will help to improve small companies because of piracy. Some of the big firms take advantage of market competence and bully prices and supplies to edge out the younger companies. Such corporations always want to dominate the market and invest more on cut-price competition, which make some of the firms to quit (Knight and Cavusgil 2004 p. 130). For this case, the business ideas of some of the young companies end up pirated by the giant firms. The case worsens if the countries do not have stringent rules that protect the young companies from unscrupulous players of the market. As it emerges, the success of small firms in the wake of globalization will only depend on the levels of preparedness of the systems of governance to protect the infant industries. A continued problem of competitiveness brings about the prolonged effects of smuggling and other illegal businesses, which flood the markets with cheap products (Stulz 1999, p. 20). In the event of such happenings, the companies end up losing substantial amounts of profits as result of due to reduced sales. The case is too open for everyone to figure the effects on a young company. The problem stems from the inability of such companies to adjust their prices because of economies of scale (Lowth and Zhang 2010, p. 23). They cannot obtain their factors of production at the same prices as the as the giant firms, which makes marketing a headache for them if there are such forces in the market as those created by the big firms. The problem of competition makes the firms to overstretch their resources and concentrate them on serious advertising, which leaves them with little investment in replacing the rapidly ageing technologies. The same advantage of rapid invention of technology works against them and makes them to spend much on buying new machinery, which overlooks the development of other sectors of the firms. Factors That Cause Slow Incorporation of Small Firms into Global Markets Several factors are attributed to the inability of a fast rate of incorporation into the global market. The first one is problem of smuggling and the porosity of national boarders of some nations that make it difficult for the governments of some nations to regulate the nature of business happening in within the countries. The problems flood the market with products and make their prices to fall cheaper than the local commodities. Such a problem kills the morale of local infant industries and therefore, makes their intention to join the global market slow. Another problem is that of insufficient capital to invest occasioned by high rates of interest from banks in some nations. There is a consideration that such firms do not have enough capital to invest and may depend on borrowing, which may come from banks. If the banks become too expensive, they scare them off, which mean they cannot develop. The same problem of lack of funds makes them to lack the capacity to replace the ageing technologies. The problem of lack of abilities to replace obsolete technologies makes them to lack the appropriate infrastructure for incorporation (Wright and Westhead 2007, p. 1015). Conclusion and Recommendations As discussed, globalization helps small firms in the economy to gain a competitive edge against others. Such is the biggest advantage, which could mean that they learn to provide quality products. However, the study also revealed that the biggest problem of liberalizing the market makes the levels of competition unbearable by the small and medium-sized entities. As a result, most of the firms lack the power to compete against the giants that control almost every aspect of the market. Bearing in mind the importance of small and medium-sized companies in the population, there is a need that governments constitute appropriate measures that will ensure such companies compete appropriately. There is a need that this work therefore, recommends some of the possible measures for adoption. The first should be that the governments come up with stricter legislations that will protect the infant industries against unfair competition. One of the best approaches is to set the trading quotas for foreign competitors as well as guarding the borders against smuggling. The rationale for such a move is to curb over flooding of the market with cheap commodities that will compromise profits for domestic small entities. There was a discovery that the small business units lack enough capital for investment. To solve such a problem, governments should reduce the rates of interest on borrowed capital so that the firms gat access to sufficient capital. Where possible, the governments should involve in subsidizing the costs of production so that the small and medium-sized firms can have enough to invest in technological changes. 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