Effect of Globalization on U.S Small Businesses
GLOBALIZATION AND U.S SMALL BUSINESSES 17
Effect of Globalization on U.S SmallBusinesses
Globalization is a process that affects all thebusiness in the world no matter the size and location of suchenterprises. However, smaller businesses experience bigger impact onglobalization compared to the large organization that can survivesuch effects. While globalization has positive effects on somebusinesses, the phenomenon has adverse impacts on the others. Thispaper will explore the concepts that surround the globalization topicwith a view of discussing the impact it has on small businesses andnew entrepreneurs. By exploring the impact on various businessconcepts, this paper will summarize the effects to come up withsolutions and recommendations that small businesses and new entrantscan implement in response to globalization.
Table of Contents
I. Background and Significance 3
II. Applicable concepts 5
III. Discussion, Implications and Recommendations 7
A.Solutions and Recommendations 13
VI. Conclusion 16
Background and Significance
Globalization is the phenomenon ofinternational integration that arises due to the sharing world views,culture, political systems and economic aspects. As a result of theglobal integration, there are changes that come along with thesharing of diverse views. Therefore, globalization encompasses therange of political, social and economic changes that influence thelife of an individual or an organization. The integration processkeeps people at a close contact with each other all over the world interms of information sharing and reception of diverse views(Reinsdorf & Slaughter, 2009).As a result of globalization, business organizations experiencechanges that they must adapt to so as to benefit from the process andovercome the challenges involved.
While globalization affects all businesses inthe world, small businesses, perhaps experience the strongest impactdue to their size and localization nature. Small businesses in theUnited States are localized to the local competition and servinglocal markets. Smith (2007) argues that the localization is becausethey have limited capital to expand to international markets ordevelop large business processes to serve global markets.
In addition, the new entrepreneurs in theAmerican scene have challenges in understanding the business modelsinvolved in the global market. In addition, new entrepreneurs andsmall businesses have limited comprehension of the global businessenvironment, hence are impacted by globalization significantly(Reinsdorf & Slaughter, 2009).This paper seeks to explore the effects of globalization on smallbusinesses and new entrepreneurs in the United States.
The Applicable Concepts
The globalization concept is a process that affects businessenterprises in terms of the business processes and businessenvironment. To effectively focus on the impact of globalization onsmall businesses and new entrepreneurs in the United States, it isimperative to understand the status of these businesses, by exploringwhat they entail and how they operate it will be practical tounderstand the effect of the globalization process. While the impactof globalization on small businesses and new entrants is diverse, itis specific in some companies based on the type and nature ofbusiness and products they trade.
Small businesses are the business organizationsthat do not have a large business size in terms of operations, outputand structure. A small business is characteristic of its size interms of the financial ability to undertake certain businessprocesses. According to McManuset al (2009), a small businesscannot finance extensive marketing and advertising functions due tothe limitation of capital to fund such measures. In addition, smallbusinesses and new entrepreneurs cannot explore the marketenvironment adequately due to limitation of engaging in extensiveresearch for development of new products. Moreover, small businessesand new entrepreneurs do not enjoy economies of scale, making theiroperations expensive.
Another concept to explore in the quest tounderstand the impact of globalization is technology and innovation.Technology tends to be the fuel that has powered the occurrence oftechnology. Particularly, communication and information technologyhas played a major role in the development of platforms that bringthe world at the fingertips of many people. This is becausetechnology has enabled mobile communication and enhancedtelecommunication by allowing people to converse at any place and anytime.
The internet has provided a strong tool for theglobalization process to develop and influence every person in theworld. According toMcManus et al (2009), theinternet has provided the basis for communication, businesstransactions and critical elements of governance and management.Through the internet, the globalization process has developed toreach all the business organizations in all countries. This isbecause the internet has been the most influential and unavoidabletools in the modern history and the recent past (McManuset al, 2009). Therefore,globalization has found its root from the development of the internetand the platforms of communication that rides with the internet.Therefore, small businesses will have to engage in the businessprocesses that involve the internet so as to keep up with theglobalization process.
At the same time, the internet has provided astrong platform for small businesses to leverage themselves andovercome globalization challenges. The internet has become a tool ofglobalization and also a platform for establishing a business thatsucceeds with globalization. By focusing on the business model ofFacebook, this paper will discuss on how the small businesses and newentrepreneurs can use new technology, innovation and the internet tolaunch new services and products that the world needs. Temporal(2011) argues that through theprocess of globalization, the new products will solve world problems,and so reap from the unique business models. This is because thesemodels are part of the globalization process and are immune to somechallenges that other conventional businesses face.
The company that this paper refers to isFacebook Inc, a company started in 2004 as a small startup for socialnetworking by university students. However, the company grew over thelast decade to be one of the most influential business organizationsin the world. The growth of the firm shows the impact ofglobalization on the growth of a business enterprise, if a firm iswell positioned. The positioning of Facebook for success throughglobalization was through innovation and coming up with a uniqueservice to the world. This case makes it clear to small businesses inthe United States how globalization has changed the world, and how tobenefit from it.
Discussion, Implications and Recommendations
Impact of globalization on sales
Globalization has two tier effects on the salesof the small businesses in the United States. Globalization leads tothe decrease in the amount of sales of small businesses and newenterprises in America, while increasing the sales of the others. Theeffect of the global forces that affects the businesses depends onthe variables that relate to the business such as the type, locationand nature of businesses (Ashford & Hall, 2011). The impact ofglobalization is experienced diversely because it depends on how thesmall businesses react to the effects of the global factors. This isbecause globalization also has a different impact on businesses withdifferent lines of products and distribution structures.
Globalization leads to decrease in the sales ofa small business by affecting the local markets adversely for thecompany. As a result of globalization, the American market has beenopened to the world. This is through the ability of local consumersto contact international suppliers who supply the same type of goodsthat are available in the United States. According to Ashford andHall (2011), most consumers prefer international suppliers to localbusinesses because of the quality of products or lower prices. As aresult of the preference, the local businesses, especially the smallstart ups lose the local markets to the international sellers. Thishappens as an impact of the globalization process, which creates anenabling environment for sharing of information and businessopportunities.
On the other hand, globalization can lead to anincrease in the sales and performance of the small businesses and newenterprises in America. The impact is because of opening new marketsin other countries by creating channels for global business. Thesales of local businesses increase due to the exportation of theirgoods to global consumers or business customers. According to Smith(2007), this arises due to the development of business ties withinternational firms or consumers through the channels enabled byglobalization. The tools of globalization that allow sharinginformation to become the agents of opening markets and allowing theexchange of goods and services. As a result, there is positive impacton globalization on the business numbers of sales and profit margins.
One of the main impacts of globalization issharing of information between the local and international businessorganizations and customers. The sharing of information, especiallythrough education and the internet creates channels for people aroundthe world to know the world at a close contact. As a result,globalization helps to create awareness of the global businessopportunities. One of the channels of sharing such information isthrough the technological platforms of telecommunication and theinternet. According to Reinsdorf andSlaughter (2009), sharing of informationlead to exposure of goods and services offered by a small business inthe united states to the global scene.
Competition is one of the most diverse effectsof globalization to the small businesses and new entrepreneurs.Competition is not only negative but also positive to the smallbusiness enterprises, especially those that are growing. Therefore,the impact of globalization on these businesses will be as diverse asthe competition element is varied to the business. According to Smith(2007), competition is beneficial to a business when it leads to theproduction of better quality goods and an increase in the growth ofthe enterprise. However, Smith (2007) argues that competition isadverse when it leads to loss of business of a company. Such adverseimpact can lead to the closure of the business of such a firm. In asimilar way, globalization impacts a business enterprise in the twoextremes.
Globalization leads to business growth to smallbusiness organization by introducing healthy competition to thebusiness environment that a company operates from. According to Smith(2007), healthy competition is the competitive forces where a firm isforced to do better in the market by improving its businessprocesses. Globalization introduces such healthy competition byopening the local markets to the international businesses. At thesame time, globalization opens the international markets for thelocal business (Ashford & Hall, 2011). The opening of local andexternal markets exposes the small businesses in the United States toconsumers outside the country. As a result, the companies facecritique from several types of consumers. In this way, the companylearns from the rejection or acceptance of its products by local andglobal consumers.
The healthy competition from the globalization process forces thesmall company to improve the quality of products so as to compete inthe international market. By doing so, these companies increase theirrating in the local markets and gains the preference of the localconsumers. In addition, there are forced to set competitive pricesthat will compete with large multinationals that enjoy economies ofscale in their global business. To achieve the competitive prices,the small businesses are forced to improve their business processesso as to reduce the costs of operations. According to Smith (2007),this is done by adopting efficient operations and production methodsthat reduce their production costs. This allows them to setcompetitively low prices, while maintaining their profit margins atsustainable levels.
However, globalization opens the smallbusinesses and new entrepreneurs to unhealthy and mostly adversecompetition from the dominant global business. This is because themultinationals that operate at the global level are larger and ableto produce goods at low prices in terms of costs. The low costs,which come as a result of diverse economies of scale lead to lowprices, even in the international markets (Smith, 2007). Throughglobalization, such businesses discover new markets that werepreviously dominated by the local small businesses. When consumersdiscover the affordable and mostly, quality products, they shifttheir preferences from the small business to the largest globalenterprises. As a result, the new entrepreneurs are hurtingfinancially in lost business.
In addition, large businesses that operate inthe global arena are able to engage in ambitious promotion campaignsand advertising strategies. Through the channels of globalization,such businesses enter the local markets and promotional space usingthe conventional media like television, radio, print and internet(Temporal, 2011).The result of such opening of space is adverse to the small businesswho cannot afford to finance such large promotional mechanisms aswell as sustain them for a long time (Smith, 2007). As a result, theylose the local market share to the large companies that can accessand sustain the market through advertising. Moreover, the quality ofthe goods produced by the global businesses is high due to experienceand complex production and standardization processes.
Globalization and innovation
As noted, globalization opens local businessenvironment of a global space by allowing entrepreneurs from any partof the world to the global market. As a result, competition is themain element that eliminates businesses from the market and keeps theglobal business in dominance while others are surviving (McManuset al, 2009). However,globalization opens a room for the establishment of new businessesthrough the introduction of new solutions to age-old problems. As oneof the main tools of globalization, technology has played a key rolein this direction. This is achieved by small business and newenterprises since the space is open for all through the process ofinnovation or invention. Innovation leads to the development of newproducts that cannot be produced by other companies as a result ofprotection from the law through patenting and copyright laws.
Through innovation, small business and newentrepreneurs are able to develop and sell their products to theinternational market without competition. According toTemporal (2011), this is possiblebecause technology has no boundaries and can be sold without movementof goods and services geographically. Such sales are made possiblethrough the transactions done over the internet. According to McManuset al (2009), the internet hasemerged as one of the most powerful tools of globalization inhistory. This is because the internet opens the small businesses andthe new entrepreneurs to sell their wares over the internet. Theuniqueness of the products being sold by these businesses supplementsthe ability of the new businesses to compete on the global stage.
A good case study of the impact ofglobalization is the development of the internet company, Facebook.The company has grown over a very short time to be a global giant insocial networking and online business communication. The companystarted in 2004 and has taken less than a decade to dominate theinternet business market by being one of the most used and valuableonline companies in the world. While the company started as astartup, the current market success shows how globalization hassupported the growth of the firm. In addition, the growth speedindicates the ability of globalization to support certain types ofbusinesses while adversely affecting others. The businesses that arepositively influenced by globalization are those dealing withtechnology.
The reason why Facebook’s story is successfulis because of the environment that the firm operates on. The firmoffered an innovative service of communication and sharing ofinformation that other companies could not provide. This was aperfect example of innovation that was not only needed in the world,but also needed by the large players in the internet scene. Accordingto Temporal (2011), thetype of the product matters because a new business or a smallenterprise cannot compete with the established organizations if itoffers the same products in the market. This is the reason whyinnovation is an element of business that allows small business ornew entrepreneurs to establish strong and unmatched competitionagainst any competitor.
Globalization and business environment
Globalization opens several opportunities aswell as challenges that in the organizational setup. For small andnew entrepreneurs, globalization opens them to the new environment ofbusiness practice and management. At the same time, the effects ofglobalization on small business depend on the type of environmentthat the businesses operate on (McManuset al, 2009). The currentbusiness environment is therefore a result of the past interaction ofthe local business practice and global influence. While the way anorganization manages the business depends on the type of leaders, itis significantly affected by globalization (Amason, 2011). This isbecause the management and the leaders learn business practices fromglobal cases.
Globalization shapes the type of businessoperations that each organization adopt through introduction of newbusiness management ideals (Amason, 2011). In addition, globalizationintroduces the small business to the processes of management thatthey have to face whenever they expand. Temporal(2011) argues that this has animpact on the type of business structures that a small organizationsets in its business processes. While the business process is shapedby the management, the nature of such processes and structures of thefirm depends significantly on the global practice (Amason, 2011).This is a result of the global business environment that constantlyinfluences the management environment for the local small business.Therefore, globalization shapes the growth path of the smallbusinesses and new entrepreneurs.
The business environment has been changing overtime depending on the growth of the global business community. Thischange introduces an element of influence of the globalization forcesto all business, including small business in the United States.According to Temporal(2011), the changes in the globalbusiness environment have a direct impact on the changes that smallbusinesses and new entrepreneurs have to implement for them to remaincompetitive in the industry. This is because they operate in thelocal business environment that is directly influenced by the globalbusiness environment. Therefore, the small business and newentrepreneurs have to be dynamic to such changes as they presentthemselves on the local scene.
In the case of Facebook, the businessenvironment for the industry was not present for the service and theindustry it operates in was not present, until its formation. Theformation of the company introduced the world to the industry ofsocial media and social networking. After the formation of Twitter,its closes competitor, the industry was set, full with players. Thisshows how innovation and uniqueness of service shields a businessstart up from the effects of globalization. Until now, Facebook isthe market leader in the industry, and the business environment issignificantly affected by the business decisions the firm makes.Therefore, globalization does not affect the firm in extreme measurescompared to other conventional industries. On the contrary, Facebookprovides the tool through which globalization rides on.
Solutions and Recommendations
Sales and business output
In the light of the diverse impact ofglobalization on business sales volumes, small businesses shouldposition themselves for positive impact. They should understand thenature of the impact that globalization will have on their businessoperations. Through such understanding, small business owners and newentrants will position their businesses to the favor of globalization(McManus et al, 2009).This can be done by doing the following positioning techniques.
The small businesses and new entrants should engage in products thatthe local markets need and cannot be substituted by the globalmultinationals. According to Mcloughlin and Aaker (2010), this can bedone by producing products that are produced locally and consumedlocally using local resources. For instance, small business and newentrepreneurs should produce products using resources that globalorganization cannot access internationally or because of localrestrictions by the government.
Small businesses and new entrepreneurs can alsoestablish their businesses near the sources of factors of production.According to Forey and Lockwood (2011), this will lower theirproduction costs and so enable these businesses to set competitiveprices compared to the global business organizations. As a result,their business income will not be affected because they will havefactored in sustainable profit margins in the selling price. Havinglow prices means that the local consumers will consider buying theirproducts other than those that are imported. In this way, smallbusinesses will have positioned themselves to survive despite theadverse effects of globalization.
One of the recommendations for small businesses and new entrepreneursis to take time to learn the local and global business environmentbefore starting a business venture. According to Forey and Lockwood(2011), this will expose the business owner to the dynamic nature ofglobal business and how it affects the local business scene throughglobalization. This will also help the local business owner to learnnew techniques of integrating their businesses with the globaldemands. As a result, a small business owner will position hisbusiness to compete with the global players, at the local level.
In addition, it is recommended that the small local businesses andnew entrepreneurs carry thorough research before starting businessventures. This will give them insight on the types of businesses toengage into and those that are adverse to attempt. Such research willindicate the types of products and businesses that are adverselyaffected by globalization (Mcloughlin & Aaker, 2010). This isbecause the new entrepreneurs and small businesses do not have thefinancial muscle to absorb their business operations to the globalforces. In addition, such research will open their minds toprofitable business venture, both locally and internationally.
Finally, small businesses and new entrepreneurscan opt to establish new business models that leverage them to reapfrom the efforts of the large multinationals. According to Ashfordand Hall (2011), one of the main strategies is to establishpartnerships with the large multinationals that make them businesspartners and associates other than competitors in the industry. Themost effective form of business is franchise model, where the localbusinesses will run the business models that are set by the largemultinationals. According to McManuset al (2009), new entrepreneurshave an easy road when establishing franchises because they follow aproven business model. This will also allow them to reap from theforces of globalization that favor the large business with globalpresence.
A good example is a local new entrepreneurstarting a globally known gas station. Instead of starting apersonally owned brand, that has not been known, a wise entrepreneurwould start a franchise of Total or Shell. The customer base in thelocality would know the global brand and not the owner of the gasstation. For instance, a consumer from another country who visits thelocality, and is a loyal Shell or Total customer, will fill his orher car at the gas station. This explains how a small business and anew entrepreneur in the United States can benefit from the globalbusiness environment to increase sales.
Small business enterprises and newentrepreneurs in the United States should embrace innovation as theirmain tool for venturing into business. They are recommended to useresearch to develop new and unique products that are needed in theentire world. Taking the business model of Facebook as an example,new entrepreneurs should think about the needs of the current globalenvironment, and come up with means of solving those needs(Mcloughlin & Aaker, 2010). Through innovation, the newentrepreneurs will not only overcome the challenges of globalization,they will also turn globalization as the source of business. Forinstance, Facebook makes money by allowing the process ofglobalization to take the course.
Embracing innovation will give the solution toglobalization and provide the world with means of sustaining businessin the global environment. Therefore, small businesses in the UnitedStates are recommended to take technology as the tool for aligningtheir businesses to the globalization influence. In addition,technology will make their business processes efficient and lesscostly by providing effective and faster operational methods(Reinsdorf & Slaughter, 2009). The effectiveness will improve thequality of their products while the efficiency will allow them to setcompetitive prices for their products.
As a process of integration of the people,globalization makes the world into a global village by allowingpeople from every side to be in close contact. This presents thebusinesses all over the world with diverse effects since the processhas positive and negative impacts. While globalization has presentedsmall business in the united states with opportunities to somebusinesses, it has adverse effects on some. The impact ofglobalization is experienced by the new entrepreneurs in terms ofcompetition, changes in the business environment, the effect on salesvolume and innovation. To position themselves for positive changes,small businesses and new entrepreneurs should embrace change andadopt technology to innovate their products in line with the changingneeds of the global environment. Moreover, small businesses and newentrepreneurs should learn new business environment and use researchto develop appropriate business models that will position them togain from globalization and overcome the challenges of thephenomenon.
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