The Effect of Globalisation on Small Business
In the last few years, the effect of globalisation on businesses and especially small businesses has been the topic of conversation in academia as well as the corporate world. Why should this be, when by definition they seem to be further down the ‘business’ ladder? Before anyone jumps down my throat, I am not saying that they are, at all. In fact, the statistics tell the opposite story. Small and medium enterprises (SMEs) contribute to over 50% of the GDP and provide over 60% of the total employment in so-called developed, high income countries (Just ask UNCTAD). Even in developing countries, SMEs have been credited with significantly helping the economy. So is it really all that? Or is there a cloud in the business silver lining? This article will look at the effects of globalisation – the good, the bad and the very ugly.
The first obvious effect that globalisation has on business is the opening of doors and the increase in the amount of potential customers, suppliers, partners and collaborators out there. Before, if your business was in the United Kingdom, it seemed too much hassle to try and trade and do business with someone in India (even though up until 40 - 50 years ago it was part of the Empire).
Letters took an age to arrive, telephones were temperamental at best and if you ordered your tea, it would take months to get to you. In the meantime, you needed to speak to your customers in America inviting them to sample the tea but you had to make sure it was timed to perfection or they would arrive before the tea and leave dissatisfied and with a bad taste in their mouth...figuratively speaking. But now, the world is your proverbial oyster.
As someone who has just started her business very recently, I can heartily attest to this fact. The second effect of globalisation is that it is easier to sell and manufacture things. A useful statistic that I learnt is that 90% of exporters are small businesses, so this can only be a good thing. The Internet has helped with this area, and businesses should and have taken advantage of this.
The second is that small businesses are now able to compete on an international scale. Before, importing and exporting was something that the big companies could do because they could absorb the costs as well as dealing with all the legal complications. As the barriers have come down, there has been more choice for small businesses to get involved. With more choice comes more competition and with competition comes possible ‘price wars’ which can only be good for the customer and business, especially for small and home-based businesses.
With globalisation, there is the opportunity to make alliances which can mean that you as a small business can access expertise, technology and products that you may otherwise miss out on. That can only be good for business and good for you.
However, it’s not all rainbows and flowers when it comes to this. With all these changes, small businesses have to sell /deliver their products at a lower cost because that is the only way that they can compete. This can have a negative effect on their profitability.
Globalisation can have more of a negative effect on small business in developing countries because the opening of the borders means mass migration. This means that the country loses some of its best business talent, which in turn could mean that small businesses have smaller pools of human resources to choose from.
I know that there are more reasons to list here but this is not meant to be an essay, but an article to encourage open and frank discussion on the subject of globatlisation that has divided businesspeople and academics alike. It surprises, frustrates and is sometimes misunderstood--but one cannot deny its effect on businesses and small businesses in particular.
Job Losses Due to Globalisation
In the United States, it is estimated that at least 2 million well paying jobs in the manufacturing sector by globalization and the increased use of machinery (automation). When it comes to job losses in the U.S., another word is offshoring, when a company closes a factory or a plant in the United States and moves it operation to a difference country where the labor is cheaper.
According to the Washington Post’s analysis of this Bureau of Labor Statistics data for 2006, “Only about 12 percent of layoffs stemmed from ‘movement of work’ – (offshore outsourcing.)
Not everyone is unhappy about globalisation. Those is less developed countries where many of these jobs have moved have seen their economies improve and less people in poverty.
Take care and God bless readers . . . .
© Ngozi Nwabineli October 2009