Over the years, reports show that globalization has had both positive and negative profound impacts on small businesses worldwide. On one aspect, it has presented businesses with new markets and opportunities to reach a global audience, and on the other side, it has brought increased competition from larger and well-established businesses.
However, in our present interconnected society, globalization has stood strong as an undeniable force that shapes economies and businesses worldwide. Thus, understanding and harnessing its power is crucial for small business owners to unlock growth and success. For small businesses to remain relevant and competitive, business owners must adopt an agile and forward-thinking approach to globalization. Hence, in this article, we will examine seven powerful ways in which globalization affects small businesses both negatively and positively with further tips on how to mitigate the challenges that come with globalization.
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What is the meaning of Globalization in Business?
Globalization in business refers to the movement of goods, services, information, and capital across international borders. Such business globalization can be achieved through exporting, importing, or establishing foreign subsidiaries in another country. Additionally, globalization fosters close relations and trade between different nations while reducing cultural and economic barriers, such as high tariffs, border controls, and differing regulations and standards.
Factors Causing Globalization Of Business
There are numerous triggers for the increase in globalization in the world of business. It is noteworthy to know them as small business owners because they contribute to the ways globalization affects small businesses in the world. Below are a few factors:
- The advancement of technology in the 21st century is one of the key factors in accelerating globalization. Digital tools like the Internet, apps, machine learning, and advanced technologies like 4th and 5th Generation AI and NLP enable SMEs to contend easily on the global stage.
- The falling costs of international travel have made it more affordable to ship goods and services over long distances.
- Governments in the world have actively worked to reduce trade barriers which have promoted liberalized trade policies that make it easier for businesses to operate in multiple countries.
- The increase in the volume of minority groups from different ethnicity and languages migrating to other countries has also played a role in globalization.
- The declining costs of communication have facilitated seamless interaction between countries, further boosting globalization.
- The increase in the quest to access larger markets by large and small enterprises.
- There are changing demographics, such as population shifts and diverse cultural influences, that also add to the increasing globalization trends.
Ways Globalization Affects Small Businesses
Here are seven (7)ways globalization has affected small businesses both positively and negatively.
1. Expanded Access To The Global Market
One significant advantage of globalization is breaking down geographical barriers for small businesses. The establishment of the World Trade Organization in the mid-1990s incited a free trade revolution that opened opportunities for small businesses to tap into overseas markets. Also, with the rise of e-commerce and technological advancements, establishing an online presence has become easier than ever.
Consequently, small businesses can now effortlessly reach customers worldwide, and in turn, lead to increase sales and revenue growth. So, embracing this worldwide marketplace enables them to cater to niche demands and present unique products to a global audience.
2. Intensified Market Competition
As globalization opens doors to new opportunities, it also exposes small businesses to heightened competition. The entrance of larger multinational corporations and global players into the business scene poses challenges for small businesses. More so, with their vast resources, economies of scale, and well-established brand recognition, these giants dominate the market, creating an uneven market space for smaller enterprises.
However, these competitions also impact small businesses positively because it motivates them to seek innovative and unique competition solutions to enable them to stand out in the global space Likewise, small business owners can learn and collaborate with their large competitors. It enables them to become adaptable to market changes and to improve their efficiency.
3. Technological Advancements and Innovations
Globalization’s impact on small businesses extends to fostering technology transfer across borders. As a result, small businesses can capitalize on new technologies, software, and digital tools developed in other countries. These technological advancements enhance productivity, streamline operations, and keep small businesses competitive in the global marketplace
For example, the widespread adoption of the Internet and e-commerce has revolutionized customer outreach, providing new avenues for growth and expansion. Furthermore, innovations in areas like AI, machine learning, and robotics have facilitated task automation, boosting operational efficiency.
4. Human Resources and Talent Management
Thanks to globalization, small businesses gain access to a diverse and talented global workforce. If these businesses accept cross-cultural collaboration, it will foster creativity and innovation within teams, resulting in unique perspectives and fresh ideas. Likewise, employers can attract global talent by offering remote work options, flexible schedules, and competitive compensation packages.
Notably, startups and small businesses can now hire employees and freelancers from anywhere in the world, eliminating the conventional limitations of hiring inside a local area. Finding the proper talent for certain business needs will be simpler and perhaps more cost-effective as a result of the increased availability of a wider range of professional workers, from engineers and designers to content producers and salesmen.
In contrast, because of this outsourcing of skills and remote workers, employers frequently threaten to export employment and demand pay cuts from local workers. Additionally, because export positions pay better than other jobs do, employers use them to exploit local workers. For instance, small business owners in Nigeria frequently lose strong talent because they are outsourced to other companies abroad and the majority of the workforce leaves the nation in search of better chances. This negatively affects small business owners’ outputs.
5. Supply Chain Optimization
Small businesses can obtain supplies and resources from a variety of places thanks to globalization, creating a supply chain that is more reliable and efficient. They can intentionally buy components, finished goods, or raw materials in cheaper or higher-quality nations, which saves money, lowers expenses, boosts product quality, and increases manufacturing efficiency. Additionally, this improved supply chain creates expansion potential for businesses enabling them to penetrate new markets and appeal to a wider clientele.
The COVID-19 pandemic highlighted the significance of robust supply chains, motivating small businesses to diversify their suppliers, bargain for favourable terms, and implement environmentally friendly practices. Small firms can assure smooth operations even during unanticipated global issues by forging solid relationships with suppliers and upholding open communication.
6. Increased Investment
It is critical to understand that globalization and business expansion abroad can be financially taxing. The large expenditure needed to develop and implement a successful globalization plan might be a great hindrance. Additionally, establishing a business or presence abroad entails significant costs, including employing staff and signing contracts with new partners, and paying taxes.
In addition, thorough research, money, and effort are necessary to successfully traverse these difficulties. Therefore, the significant expenditure can be a formidable obstacle that might restrict a company’s ability to pursue worldwide expansion, especially for smaller companies or those that are just beginning to scale abroad.
7. Regulatory Challenges
Entering international markets introduces small businesses to a myriad of regulatory challenges, including tariffs and trade barriers. Each country has specific legal and compliance requirements that must be diligently understood and adhered to. So, the costs and time involved in navigating these regulations can serve as barriers for small businesses seeking to expand globally. To overcome these challenges, small businesses need to invest in legal counsel and ensure thorough understanding and compliance with international regulations.
Examples Of Globalization in Business
- McDonald’s is a successful American fast food chain with more than 36,000 outlets that has successfully entered more than 100 countries. It is present in many nations, including France, Japan, India, and others. McDonalds has tailored its menu to suit regional preferences, as evidenced by the availability of the Maharaja Mac in India, the Terayaki burger in Japan, and the Croque McDo in France.
- Coca-Cola is one of the most famous brands in the world and is sold in more than 200 countries through more than 84,000 suppliers. The American corporation has been able to reach this degree of global recognition thanks to a variety of factors, including its emphasis on marketing and branding, its capacity to mould its goods to local preferences, and its alliances with regional bottlers. For instance, Coca-Cola offers a well-liked Thums Up product in India.
How can small businesses deal with Globalization?
Here are some tips for small businesses on how to navigate the globalized marketplace:
1, Focus on your business strengths: What makes your business unique? What can you offer that larger and more established businesses cannot? should be your concern. To survive, small businesses must focus on their unique value propositions, customer service, and niche markets to differentiate themselves from their larger competitors
2. Make Research: Before entering the market, you should conduct in-depth research on new markets and gauge the level of competition. Keep in mind that following local laws, culture,s, and regulations is essential to moving through the nations where you operate with ease.
3. Forge partnerships with competitors: Try to connect with businesses in your industry to open doors to valuable opportunities and potential partnerships. Emulate global competitors to foster an innovative spirit.
4. Be flexible: The global marketplace is ever-evolving, so it is necessary to adapt your business to meet changing customer needs. Embracing flexibility ensures your business remains resilient and responsive to emerging trends which enables continuous success in globalization.
Ways Globalization Affects Small Businesses: Conclusion
Small businesses must embrace the impact of globalization as a necessity, not merely an option. By seizing the numerous opportunities and facing challenges head-on, entrepreneurs can pave the way for long-term success in the globalized world. Moreover, the key lies in remaining adaptable, innovative, and ethically responsible while fully embracing the diverse opportunities presented by the world. Whether it’s a family-run boutique or a tech startup, small businesses can achieve remarkable heights by harnessing the power of globalization.