2017-07 SMEs and Globalization: A Changing Landscape

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.

2017-07 SMEs and Globalization: A Changing Landscape

In this era, even small businesses can easily compete on the global stage. The internet has opened up opportunities for small businesses to export their products to foreign markets and to cut out the middleman when procuring inventory across borders. Here are some of the key ways that globalization has changed the landscape of small business:

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.

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.

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.

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.