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Globalization is a structure of cooperation among different countries around the globe in order to strategize on how to improve world economy. In other words, it is the integration of markets from different states with a view of advancing market segments to the global market.
We have both positive integration and negative integration, where positive integration focuses on standardizing global laws and policies. Negative integration involves abolishing of trade regulations, such as, tariffs. Though globalization widens the market for countries’ products, it has both positive and negative effects on small and medium sized businesses (SMEs). We will look at the major challenges that small enterprises are facing in Kenya due to globalization and how these problems may be put to rest.
Small firms usually compete well in domestic market than in the foreign markets because of the power they have locally that is set by the market. The only way that could make these firms to survive from being eliminated from the market is through government protection. Local government may apply several measures to strengthen local firms and industries and prevent them from unfavourable pressure from external markets.
Local enterprises employ up to 50 per cent of citizens in the country, this reflect how these firms play a major role in gross domestic product (GDP) growth of the economy (Wright & Etemad 2001). It is evident that the local businesses if eliminated by these foreign markets could harm the economy of any country. Now let us look at the methods that governments have applied to protect smaller firms in the wake of globalization.
An export promotion strategy as viewed by Knight (2000) should be put in place to outline how these small firms could be helped to increase their performance and compete with other bigger firms in foreign markets. The major strategies that can enable these small firms to improve their exports include; well established infrastructure, improved market, and free access to finance.
Developing Export Infrastructure
If well established infrastructure such as export processing zones and bonded production points are set for the small firms, it will encourage these enterprises to export more and thus increase revenue. In developing countries provision of water, electricity, roads, ports and telecommunication services would boost the firms since absence of these services has been seen as the major obstacles for their expansion (Anazawa 2004).
Adequate access to finance would assist these firms to fund their operations and stand a better ground to compete with foreign markets. These firms should be allowed to get loans from financial institutions to enable them expand their operations and stand a better ground for competition (Knight 2000).
Strengthening Of Market Channel
Many of these small firms have not been able to identify potential markets for their products due to lack of knowledge. This has made these firms find it hard to market their products; this is due to the fact that they have not been able to establish good marketing channels and have weak relationship with potential customers within the market segment.
One way that could solve these issues is for the trade houses to link the small producers with other channels such as packaging, quality management, insurance, and delivery to ease trade. And also receive assistance from joint marketing consortia (Wright & Etemad 2001).
Another important issue that government and other trading organization could put in place so that the small firms’ products enjoy a bigger market share is trade promotion such as advertisement and organizing trade exhibition. Private sectors and small firms’ organization should emphasize on awareness creation to the public through availing of market information and vocational training to impart ideas on the emerging issues in business sectors.
Governments in different countries have set institutions that provide technical support and training on matters relating to quality assurance and control, product design, loan certification, and trade promotion. However, the success of these firms mostly depends on their level of understanding on commercial sector, financial resources, and equipments (Knight 2000). Government should be aware that increased cost of infrastructure could harm the small firms and thus stand a bad chance on competition.
Trade information and knowledge on commercial set up should be acquired through market research and developed skills of data analysis together with better knowledge of modern technology. This issue should be emphasized through small firms’ associations and government agencies. These firms should be aware of current customers’ preferences and be able to create a brand image that will attract many consumers. This will help them to cope with the prevailing market scope and expand their markets (Tetteh & Burn 2001).
Means of cutting down the cost of production should be put on ground by the government to enable the firms to offer a competitive price that is prevailing in the market. The prices will often contingent upon the quality of the product they are offering in the market. Small firms’ association should try and advice them on competitive costing and best method of pricing.
Saving of cost can be attained if proper inventory planning is exercised, which may reduce the cost up to 10-20 per cent. In developing countries, small and medium size enterprises have adopted skills to attain this level of cost. They have kept in touch with local suppliers and this has made imported products to suffer a blow due to low prices of local products. The prices of these imported goods have remained high and in return this promotes the local produce.
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Wright & Etemad (2001) observed that old technology have been the contributor of low quality produce and this is the reason that have made governments to encourage these small firms to adopt new/modern technology to enable them produce goods of high quality that would compete well with foreign products. Outdated technology tends to be also polluting due to poor waste disposal and management. Firms which fail to adopt the modern technology may soon face eviction from the market.
In Korea and China, programs to connect small firms with bigger firms as subcontractors have been started. These programs encourage the well established and successful firms to assist the smaller firms increase their performance and improve on response capacity on export field.
These countries have succeeded due to the joint coordination and presence of well established body called Investment Development Bureau located in China Taiwan province and also assistance from ministry of international trade and industries in Korea (Anazawa 2004).
This method of subcontracting with bigger firms assists the smaller one to gather adequate information to widen their markets. It has proved beneficial in Korea and Japan by widening the linkage of their market segments. Government also boosted this move, which in long run yielded fruits and saw the small firms in these two countries benefit (Anazawa 2004).
Bigger companies can be encouraged by the government to develop models that would assist the small enterprises in accomplishing their goals. Emergency of trading associations and trading houses facilitated by the big firms can increase total exports of small enterprises.
In Brazil, India, and Turkey the bigger firms have established their own organizations, which act as their intermediaries to assist them in exportation and importation of their products (Samad 2007). Though these organizations act as agents of the marketing channels for these companies, they can also assist the small firms to get better markets for their products.
Trading houses have also been opened up in Japan. In real sense these organizations are not producers but they link small firms with world markets and thus the SMEs gain access to the foreign markets. Governments of various countries have adopted this move and are encouraging the small enterprises to link themselves with the association so that they stand a better ground of competition and consequently widen their market.
Governments should link the small firms with necessary data to avoid surprises in exports markets. These are notifications relating to measures and standards of the products that are demanded in the international markets.
Business should keep track on the prevailing requirements in the foreign markets and it is the obligation of the government to keep the business enterprises informed through collaboration of government national inquiry point and business sectors (Anazawa 2004).
But this has been greatly undermined by developing countries because of exporters’ negligence in these countries on their rights. They don’t take advantage of notifications that are available in the national enquiry centre. This has made it difficult for small business enterprises in the less developed countries to expand their trade outside their mother countries.
Business sectors in developing countries should put pressure on government to avail them with necessary information and notifications available. Brazil and Canada have adopted this policy. These countries have put down mechanism that keeps the business informed of matters arising.
This is mostly in regard to sanitary and phytosanitary Measures (SPS) for those countries who mostly produce agricultural goods for export. Some countries have gone to an extent of creating an SPS committee and this has made both small and medium enterprises expand their operation from national level to international markets.
This has made it possible to maximize the profit margin and compete fairly in the international markets. The committee facilitates gathering and close relation among trade organizations such as chamber of commerce and exporters associations (Wright & Etemad 2001). These are main bodies that facilitate trade within a given country and through their interaction, strong trade solutions may be reached.
Exporting firms should produce commodities of high quality and that reflect their target market as stated by Samad (2007). Failure to this may lead to elimination by the larger firms, which are well established.
Further to this, trade associations and other government bodies may put some standards so that national industries and business enterprises, at least accomplish the minimum standards as required by global markets. Collaboration between exporting and importing countries has enabled businesses to enter in the market of their choice and that has enabled the small enterprises to also venture in these markets
Government can impose high tax on imported goods and this will regulate the importation of these goods. When government tax heavily on imported goods then low tax on exports, it means that local products’ price will be relatively low and this will discourage the traders from importation of the same product.
Instead they will tend to purchase local products because of their low prices and on the other hand people will tend to export more than what they import (Tetteh & Burn 2001). This will encourage the local firms to produce more items for exports and in return this will create a favourable balance of payment in the economy. More jobs will be created due to emergency of new firms, which emerge so as to enjoy tax advantage.
Governments can also protect these small enterprises by putting quotas on imports. This involves the regulation of quantity of a certain product that enters into the country. If for example in a particular country maize is their major produce, the country may regulate the importation of the similar product from external markets.
It can adopt a policy which will spell out the quantity that should be imported within a given period. This method prevents dumping of items in the country and consequently encourages the local products. This method of trade regulation has been practiced in several countries and in long run it has assisted the small and medium size enterprises (SMEs) to expand their operations (Anazawa 2004).
Another restriction that is normally used by various governments to prevent local industries is total ban on imports. This is where a country withdraws importation of a particular product if it has a major effect on local firms or a negative effect to the citizens.
Latin America applied these trade barriers to restrict the entry of companies in its territory; this made it hard for emerging firms to find their way in the country especially those in clothing and food business. Quotas play a major role in protecting the local firms and this has seen many traders opting to venture in local market other than importation.
Tax subsidies have also been practiced in various economies to encourage the local market. This has been with respect to tax cut or even tax holidays on export to encourage exportation of locally produced items; this has made importers to embark on exportation and thus promoting local market and firms (Tetteh & Burn 2001).
Small firms have enjoyed lower cost of production since there is low cost of labour than foreign firms. If the cost of raw materials for locally manufactured products is cheap it means that the firms will buy these products at relatively low prices. This promotes local firms and consequently imports lack market locally.
Globalization in India affected the local companies because of increased competition in the Indian market. Due to foreign goods being of better quality than the Indian goods, the consumers demanded foreign goods. This reduced profit margin that was being enjoyed by Indian industry companies.
It normally was mainly experienced by pharmaceutical, manufacturing, chemical and steel industry. The emergency of modern technology made the number of labour required decreased and consequently several people lost their jobs. This was experienced by pharmaceutical, chemical, manufacturing as well as cement industries.
The government of India should focus on policies that will be beneficial to the local industries rather than concentrating on measures that would lead to harmful effect on the economy. In addition, governments and trade associations have a major role in ensuring that small business enterprises are not eliminated by globalization wave. Small enterprises contribute about 50 per cent toward the country’s GDP growth.
This is the reason why government applies regulation tools to curb importation and encourage exports. Small business enterprises must establish associations to facilitate their protection and availing of market information when necessary. Government and also financial institutions should reduce their tight restrictions that make it difficult for these small enterprises to acquire loans. If these small enterprises are funded well, they can stand a better chance to compete with their rivals and survive in long run.
Anazawa, M. 2004. Sharing of Japanese SMEs Experiences: SME+s as the New Source of Growth. Global Productivity Challenges Seminar, 5 August, Kuala Lumpur: Nikko Hotel.
Knight, G. 2000. Entrepreneurship and Marketing Strategy: The SME under Globalization. Journal of International Marketing, 8(2), 12–32
Samad, N. A. 2007. Positioning Malaysian SMEs in the Global: Proceedings Of Persidangan Kebangsaan IKS 2007. Kota Kinabalu, University Utara Malaysia
Tetteh, E. & Burn, J. 2001. Global Strategies for SME-Business: Applying the SMALL Framework. Logistics Information Management, 14 (1/2), 171-180.
Wright, R.W., & Etemad, H. 2001. SMEs and the Global Economy. Journal of International Management, 7, 151-154.