How Globalization Affects Small Businesses

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Globalization is a term given to the opening of borders and the increased mutually beneficial relationships between countries so that trade and services may be shared freely.

This creates a pretty picture of harmonious alliances after a stronger global economy, and dare we say it, world peace. There are many benefits to increased globalization for the small business owner, however there are also many negatives to consider.

Globalization widens horizons for small businesses

A positive aspect of increased globalization for a small business is they can often have a greater impact with their product or ‘message’.

A paving stone to globalization is the efficient connectivity of businesses and consumers worldwide by communications (internet) and shipping routes (cargo flights). This means that items can be shipped between countries and economies at a reduced cost and in a very short time.

This has broken down the borders between countries and as such, consumers are inclined to turn to the internet in their search for the perfect product and whether it comes from Alaska or New Zealand, it makes no difference to them.

Suddenly with this phenomenon, a small business not only serves their local market but are also competitors in the international arena.

globalization affect on small business

Access to a wider range of resources

In keeping with this idea, small businesses have access to foreign clientele with increased globalization.

Globalization has not only given massive corporations the opportunity to extend their reach and try to monopolize every market, but it has also given small businesses access to the foreign clientele who place importance on niche products that are manufactured on home soil, outside of sweatshop factories.

With increased global awareness, environmental impacts and fair-trade agreements when making purchases, now more than ever, people are on the lookout for quality, reusable products with the X-factor when spending their coin.

We know certain countries produce certain quality items because that is their area of passion, resourcefulness, and expertise, and as such, we no longer need to visit those countries to have access to their impeccable products.

They can all be ours, shiny and on our doorstep, with the touch of a button, the disclosure of our magic numbers and the wait of a mere few days.

Small business in a big sea

There are also many challenges small business face, the most prominent being competition and price wars.

One analogy puts it this way: suddenly small businesses are like small fish in a big sea with other small and large fish. The other smaller species compete for the same food, while the larger fish simply eat the smaller ones to keep themselves going.

Globalization has enabled the expansion of large corporations into countries that might have previously been off their radar.

An example of globalization in business

The streets of urban Japan are littered with KFC and McDonald’s.

Coca-Cola Sold Here signs can be seen on the mountainous roads near Marrakech.

These big companies are able to provide their products at a fraction of the cost meaning that to compete with them, small businesses are forced to lower their prices or face extinction.

As aforementioned, one way around this is, rather than to carry on selling a burger for example to compete with McDonalds, is to create and market your own niche product and do it well.

There will always be a place for authentic, locally made sushi in Japan and freshly squeezed orange juice from local produce in Morocco.

Keeping up with globalization

Unfortunately, the only way small businesses can compete on the same scale as larger ones with globalization is to adopt methods of automation and connectivity.

It may not be effective anymore for the local vineyard to simply service the same clients they always have, writing out receipts and steering away from anything remotely computerized.

Small businesses need to evolve to stay relevant and this includes creating an online presence with the allure of being accessible and being open to automated solutions that will aid manufacture in the long run.

The learning curve can seem daunting and expensive, however there are a myriad of benefits to adopting this new way of doing things.


5 ways globalization has impacted small businesses

Advances in technology over the last two decades have shrunk the world; travel is inexpensive, cross border payments are fast and businesses communicate in real-time. In this era, even small businesses can easily compete on the global stage.

Here are some of the key ways that globalization has changed the landscape of small business:

1. Market Access

The free trade revolution sparked by the establishment of the World Trade Organisation in the mid 1990s has opened up opportunities for businesses to sell their products to a wide range of overseas markets. Businesses are afforded a much larger market reach.

Many export markets are particularly lucrative, but even where this is not the case, global market access still allows smaller businesses to diversify and spread risk.

Increased market access is a double-edged sword however. Reducing trading barriers in export markets only works if barriers are reduced in your home market too, so small businesses have faced increased competition from competitors abroad.

2. E-Commerce

Coupled with trade liberalization, the internet allows customers to purchase consumer goods from merchants all over the world.

Export-focussed businesses benefit from increased consumer reach. On the other hand, local businesses, particularly those selling consumer goods, must now compete with retailers from across the world.

While local retailers will win out for urgent goods, consumers have shown that they are not adverse to ordering goods online, even if that means waiting a few days or weeks for shipping.

3. Strong Price Competition

Globalization has created ripe conditions for large businesses, particularly those operating in low cost markets, to compete strongly on price with local firms. The ability to compete is only barely offset by slightly higher shipping costs (and in many cases, large scale overseas suppliers can ship for less).

This effect is exacerbated in many markets by de minimis tax rules, which do not impose GST or VAT on low value imports; New Zealand, for example, does not charge GST on imports under $400. On the other hand, local businesses enjoy no such tax benefit.

4. Opportunities to Outsource

A positive for many small businesses is the advent of remote working and virtual teams.

Globalization, particularly real-time communications, has made it possible for businesses to hire or contract workers from around the globe.

While this increases the availability of talent in many markets, it also reduces small businesses labour costs. Freelance resource is scalable, which is useful for very small businesses that may wish to avoid the risk or overhead of employing several staff.

Freelance services also create an opportunity for busy, stressed-out small business owners to delegate out discrete tasks, allowing them to focus on growing the business.

5. Capitalising on Globalization

There is a wealth of support available to small to medium businesses that intend to compete on the global market.

Some government agencies take a particular interest in fostering small business growth, so keep an eye out for inexpensive courses and resources on offer.

Many recently expanded businesses maintain an interest in small business and are often happy to offer mentoring or other support to a growing firm.

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Melanie - Unleashed Software

Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.

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