Globalisation and Increased Regional Economic Integration - Essay Example

How Globalization and increased Regional Economic Integration have created major challenges and opportunities for SMEs By Student’s Name Code + Course Name Professor’s Name University Name City, State Date Abstract Globalization refers to the extension of various patterns of tradition of international economic activities towards higher levels and new places in trade, technology, finance, production, information and investment. Small and Medium Enterprises have played a great role in the economic growth of various countries all over the world. Due to globalization and increased regional integration, both challenges and opportunities have arisen for the small and medium enterprises (SMEs) all over the world. The capacity of such SMEs should be proved through various ways in order for them to derive fully benefits because of globalization and increased regional economic cooperation. Many stakeholders can help such SMEs to achieve such objectives like for instance governments, which must put in place policies, which can ensure such enterprises become beneficial to all, and sundry. However, the growth and subsequent economic growth of SMEs in any country cannot be the task of the government alone but rather; it should be a collective responsibility of all the relevant stakeholders. Globalization has presented SMEs with not only many opportunities which they can utilize positively to become beneficial to the general society but it (globalization) has also presented numerous challenges which threatens to bring down the enterprises. The aim of this research paper is therefore to examine some of the main challenges and opportunities for the SMEs that have arisen due to not only globalization but also due to increased regional economic integration. The paper also examines various methods through which such SMEs can be enhanced in order to benefit fully form such developments and how the government can participate to ensure the realization of this goal. Introduction Globalization has provided new opportunities and challenges for most of the developing economies and the SMEs. This is because it has provided the SMEs with opportunities for them to enter international trade via outsourcing and production sharing (International Monetary Fund, 2007). Due to congestion signs in most of the economic agglomerations in the world, forces of dispersion have began to influence the location of the industries thus leading to an increase in costs of production and eventually in the difficulties in securing of land, labour and other production factors. SMEs have thus been affected because land-intensive and labour intensive processes of production have tended to shift location. As a result, regional economic integration has sparked off impulses in dynamic growth through both regional and global production networking. Latest Trends in Small and Medium Enterprises Businesses Regional Integration and globalization processes have increased in both terms of space and speed. SMEs that have been capable of taking advantage of the two fundamental forces have therefore been more sustainable and grown at faster rates (Buckley, Hu and Arner, 2011). Concurrently, domestic trade, economic openness and investment liberalization have increased competition in the domestic, regional and international marketplace dramatically (International Monetary Fund, 2007). While larger and efficient organizations have been normally capable of leveraging both the new opportunities and the challenges in the domestic and external markets, the new economic environments have tended to place the SMEs at a greater disadvantage as compared to the medium-sized and large companies or enterprises (Sharma and Morrissey, 2006). However, there is enough evidence to indicate still that the SMEs have not only continued to develop but also prosper in some of the countries like Korea, Japan, China and Singapore. SME’s have become better drivers of development since they provide the vital industrial linkages which result in a chain reaction comprising of sustainable and broad based development (International Monetary Fund, 2007). The lack of SMEs as suppliers and contractors of intermediate products to the multinational and large-scale companies would imply that industrial growth in some developing nations would not be capable of realizing or achieving sustainable increases in employment, value-added, industrial and productivity linkages (Tran and Harvie, 2008). In order to benefit fully from globalization and an increased regional economic integration, SMEs should therefore provide a vital source of creating domestic employment and resilience against any possible volatile external economic fluctuations that are on the high and serve as mechanisms or tools for building local capacity (Onis and Senses, 2009). Given the fact that SMEs play a great role in the performance of both regional and international networks, action needs to be taken to foster or enhance the performance these enterprises (Sharma and Morrissey, 2006). This can be done through utilizing of the globalizing market forces together with regional economic integration (Harvie and Lee, 2002). A critical linkage should be provided between the multinational companies/large companies and the SMEs. The role of the Government in Enhancing SMEs Research conducted has indeed portrayed that governments play a big role in making sure a market structure exists that is competitive, provision of effective and relevant technical upgrading, consortium financing, marketing information and management and clustering or provision of economies of scale to the SMEs. Despite the fact that trade together with investment globalization and liberalization are detrimental towards the growth of the SMEs, the government should establish counter policy measures, which can be implemented in order to synergize any negative impacts of regionalization and globalization (International Monetary Fund, 2007). The government should ensure there is establishment of many SMEs in various regions since such success will lead to reduction of both domestic and regional income gaps, securing of sustainable social and human security and creation of a balance of employment and income (Sharma and Morrissey, 2006). There is therefore great need for governments to enhance international competiveness of the SMEs through the tax system, financing and SME promotion policies. The SMEs can therefore be sharpened through their abilities of competing through the enhancement of competiveness because of research and development enhancement of skills and quality control. In addition, the government should promote the production of supplier industries and local parts through upgrading of the SMEs production process and through capturing of large shares of value-addition. In order to increase the opportunities for the SMEs to capitalize on the regional economic integration, then regional production networking should become a more crucial aspect as a major source of economic prosperity through subcontracting and outsourcing (Johnson and Turner, 2010). The deepening and broadening of the regional economic integration towards a single production base and market will also lead to an increase in the market size and competition (International Monetary Fund, 2007). Despite the fact that globalization and the liberalization of trade and investment have been a detriment towards the growth of the domestic SMEs, there are other counter policy strategies which can be implemented in order to reduce the negative effects of regionalization and globalization in a more rapid, dynamic and sustainable economic development. There has been a rapid expansion of SMEs from the tourism sector and specialized markets towards emerging markets that have been newly established beyond the local market as part of the economic integration process (Croix and Petri, 2007). In order to facilitate the SMEs to positively gain benefits, which may arrive from increased regional economic integration and globalization, governments, should facilitate regional integration through reducing the tariff and non-tariff barriers and harmonize the standards and customs processes (Torre and Gozzi, 2006). Governments should also ensure that there is free movement of both capital and skilled labour since this would easily facilitate the formation on an integrated production base and single market (Sharma and Morrissey, 2006). The lack of a corresponding increase in the effectiveness of both the SMEs and local firms will imply that there will be no sustaining of regional integration since there will emerge more domestic opposition because of increased social and economic unemployment and instability (International Monetary Fund, 2007). This is actually the crux of regional economic integration, which has underpinned its sustainability not only for it to increase efficiency but also provide both positive and acceptable benefits to each member in the economic community or free trade area. Conclusion It is a fact regional integration has tended to increase some income disparities among some members of the preferential trading areas especially if there is no proper institution of countervailing measures. As a result, the development of sustainable and viable SMEs presents effective measures of not only countering the negative effects arising from globalization but also in regional economic integration. It is very vital to improve the capability and competiveness of SMEs since this will lead the sustenance of regional economic integration of various States and this can be done through various manifold elements, which are needed in order to improve the SMEs competiveness. Nations at different economic development stages will also need different core policy tools or instruments, which are aimed at improving the capability development of their SMEs. As a result, regional economic integration and cooperation among nations having different stages of economic developments should or must thus be accompanied with technological transfer, development assistance and enhancement of capability schemes to become sustainable and effective. Specialization and internal division of labour has become an important aspect of regional and international trade and patterns of investment. The SMEs development of the technological capabilities is an important policy towards the labialization of trade and investment regimes. In essence, regional economic integration is capable of opening up various opportunities and challenges through which the policy makers are capable of providing technological and industrial upgrading to the SMEs. Governments all over the world should positively play a role in ensuring that the SMEs fully benefit from the major challenges and opportunities that arise from the processes of globalization and increased economic integration as this will lead to high employment rates within their citizenry. Bibliography Buckley, R., Hu, R., and Arner, D. 2011. East Asian Economic Integration: Law, Trade and Finance. New York: Edward Elgar Publishing Croix, S., and Petri, P. 2007. Challenges to the Global Trading System: Adjustment to Globalization in the Asia-Pacific Region. London: Routledge Publishers Harvie, C., and Lee, B. 2002. The Role of SMEs in National Economies in East Asia. New York: Edward Elgar Publishing International Monetary Fund. 2007. Burundi: Poverty Reduction Strategy Paper (EPub). Washington, DC: International Monetary Fund Johnson, D., and Turner, C. 2010. International Business: Themes and Issues in the Modern Global Economy. London: Routledge Publishers Onis, Z., and Senses, F. 2009. Turkey and the Global Economy: Neo-Liberal Restructuring and Integration in the Post-Crisis Era. London: Routledge Publishers Sharma, K., and Morrissey, O. 2006. Trade, Growth and Inequality in the Era of Globalization. London: Routledge Torre, A., and Gozzi, J. 2006. Financial Development in Latin America: Big Emerging Issues, Limited Policy Answers. Washington: World Bank Publications Tran, V., and Harvie, C. 2008. Regional Trade Agreements in Asia. New York: Edward Elgar Publishing Read More