Globalisation of small business

GLOBALISATION OF SMALL BUSINESS

The globalization of the small enterprise will most likely be the most important development in international business as we begin the new millennium. Clearly, the 20th century has witnessed the transformation of global commerce. This transformation is most evident when one considers the impact of the worldwide disaggregation of production and the advent of transfer prices, which tend to distort the real prices of manufactured components transferred across national boundaries but within a multinational corporation. It is certainly the case that large global corporations have created a significant portion of this century's wealth; however, it is the smaller enterprise that has been the engine that has generated most of the world's economic growth over the past 20 years. The challenge faced by many small enterprises will be how to globalize their operations in order to be able to better source raw materials and components and to take advantage of proximity to global markets in order to compete head to head with much larger companies. To do this, smaller companies will be forced to make a choice between two options

  • to hire an international business specialist
  • To retain an international business consulting company.

Globalization is a very recent phenomenon for most small and medium sized companies. That is, buying and selling in global markets, up until very recently, was generally speaking an undertaking specifically achieved by the use of an intermediary. In most cases, the intermediary was a global trading company. Global trading companies worldwide shared certain characteristics regardless of national origin. Most were fairly large business organizations with the significant financial resources necessary for international transactions. Contrary to popular myth, much of the business done between a global trading company and a foreign distributor, its overseas counterpart, was conducted on open account. Open account means that the distributor was creditworthy enough to be capable of receiving goods on credit by means of acceptance of a documentary draft. Essentially, a documentary draft is a document that compels the foreign distributor to accept responsibility to pay for a shipment as long as the documents, namely the bill of lading and other shipping and Customs' documents are in order. Still today, the more familiar trade document, the letter of credit, is very often backed up by a documentary draft or bill of exchange. What is most important to note in this context, however, is the fact that until the late 1980's most global trading companies preferred to do business with foreign distributors who were good credit risks and who had both banking and trade references.

These two changes had a swift and far-reaching effect on the business practices of global trade intermediaries. Most notably, the fax machine eliminated the need for teletype operators and this eliminated the jobs of many people who had become very secure in their positions. The easy availability of training for jobs as freight forwarders, Customs' House Brokers, documents examiners and letter of credit specialists meant that a large pool of skilled employees became available for hire by manufacturers.

The banks were hardly interested in making life easier for small and medium sized companies, as some would suggest. No, their motivation upon the disappearance of large trading companies and the appearance of smaller and more specialized intermediaries was merely profit. Not only did banks in North America earn nice profits, but their counterparts overseas made more money as well.

What does all of this mean? For most small and medium sized companies, the aforementioned changes simply mean that their business environment has become more complex. In too many companies, however, it is almost impossible to assess the impact of these changes because too many business executives are still in denial about these changes and have not rethought their business strategy accordingly. It would be very easy to say that this type of in-the-box thinking is to be expected given the circumstances of most small and medium sized companies. In fact, it is probably the case that this is equally true of small and medium sized companies everywhere in the world. To those of us who work with SME's, there is an understanding that these companies almost always focus on their distinctive competency. That is, they tend to really be very good at producing their good or service or developing their new technology and they tend to not be so good at actually selling this good, service or technology to the global marketplace.

MANAGEMENT ISSUES IN SMALL BUSINESSES

The challenges that businesses face in the 21st Century range from the globalization of the market place to the digitization of technologies revolutionizing communication. Other major challenges range from outsourcing of core business processes to innovation and customer relations. Small to midsize companies are concerned with more tactical decisions and issues, such as growth, retaining qualified employees, government regulations, cost containment, and customer relations. Small business practitioners seem

To place greater importance on day to day operational issues such as Government Regulations, Finance & Substance Abuse. Professors (& large company executives) emphasize issues, which Seem to have longer-term implications: Technology, International Competition & Turnaround. These Differences may be based on the experience of running a business. That is, the more direct & immediate the impact on routine operations of the business, the more important small business..

INTERVIEWS

A first interview was conducted with two VPs of a small manufacturing company. An open-ended question was given to each VP as to the three to five critical issues facing their organization from a managerial perspective. The VPs gave four issues: managing growth, conveying to midlevel management and the employees the business vision, change issues, and training/maintaining/retaining employees. All other interviews were conducted in similar manner starting with the same open-ended question to obtain the top three critical issues pertinent to their organization. The other six organizations included two distribution companies and three more small to midsize manufacturing companies.

The other issues identified by the other six organizations included: customer service (mentioned 3 times), strategic planning (mentioned 1time), leadership (mentioned 1 time), healthcare costs (mentioned 3 times), reduce operating costs (mentioned 3 times), eroding margins (mentioned 1 time), emerging markets (mentioned 1 time), government regulations (mentioned 2 times), and supplier communication (mentioned 1 time).

Several themes emerged from the interviews. These leaders were tactical and operational in the issues that they expressed. Companies do business so close to the edge of profitability that each customer could mean the difference between a profit and loss for that quarter. Small companies are concerned with customer communication & support.

Another issue is government regulation in the form of taxes, tariffs and procedures. Small business executives feel that government regulations have become overly onerous. Also, small companies have a problem recruiting skilled and technical people. These types of people believe that small companies pose a greater risk than an already established larger company. These companies must compete with larger companies with respect to compensation, benefits and promotion opportunities. Most of the companies stated that if they were successful in recruiting skilled and technical people, there were not any issues in keeping them. Small companies do not have the resources to have many in-house training programs compared to large companies. Executives talked about how employees who better themselves thru education are an asset to the company and will usually be assigned increasing amounts of responsibility, in effect climbing the company ladder.

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