The Threat Of Globalisation To Smaller Firms Economics Essay

Globalization is non a new construct it has merely accelerated and gained complex character in the recent decennary. This has been due to a figure of drivers such as political alliances. There has been growing of trade understandings, free trade and economic brotherhoods promoting states to freely merchandise across national boundaries more easy than earlier.

It has been argued that globalization has led to economic growing in most economic systems, nevertheless some bookmans have observed that these benefits have chiefly been realised in developed economic systems go forthing the undeveloped 1s vulnerable to a batch of dangers. One of the dangers of globalization has been its menace for smaller houses who normally do non hold adequate resources, competencies and cognition to merchandise across national boundaries.

It is because of this ground that authoritiess and supranational governments have come up and are still coming up with steps to protect the involvement of these smaller houses. An illustration of such steps is revenue enhancement alleviation for smaller houses.

Smaller houses do non do a batch of net incomes as compared to Multinational National Enterprises ( MNEs ) that make immense net incomes because they operate in different states. Therefore if smaller houses are taxed similar to these companies they are likely to do losingss and cease to run. This is because revenue enhancement reduces net incomes for the company and smaller houses do non hold fiscal musculus like big companies to counterbalance for any losingss caused by revenue enhancement.

In my ain position it is of import that smaller houses are supported from the menaces of globalization because they contribute to the development of both developed and developing states by supplying employment goods and services to poorer people and contribute to the National Income of the state.

However this protection should non be over emphatic because if smaller houses are non exposed to globalization they may be self-satisfied and miss out on the benefits of globalization such as planetary experience and exposure to planetary competition. These benefits can enable them to turn so that they have a wider pool of resources and dispersed hazards.

Not all transnational corporations started out large they had to travel through phases to be what they are today. This is why even smaller houses should be exposed to globalization if they have to last and turn in the long term. The universe is going a planetary small town and in future they might barely be any little houses.



The intent of this study is to discourse what globalization is, the menaces it has on smaller houses and how authoritiess and supranational governments can back up these houses. The information used in this study was gotten from the cyberspace, books, magazines and pre written studies. It besides includes some of my ain sentiments on certain affairs.



Globalization is the relationship and widening of mutuality among people from different parts of the universe and particularly among different states.

There are forces that have driven the construct of globalization in the recent old ages. These include addition in enlargement of engineering, worsening trade and investing barriers, development of services that support international trade, turning consumer force per unit areas, increased planetary competition, altering political solutions and expanded cross national cooperation.

Many influential economic expert, politicians and concern leaders have argued that globalization has brought about a batch of benefits. These include stimulation of economic growing, increases in income for consumers, occupation creative activity and rise in income degrees in poorer states and the decrease in monetary values for quality merchandises and services due to international trade.

The statements against globalization include menaces to national sovereignty where states and markets are mutualist taking to loss of national power for some. Another statement is that of its consequence on economic growing.

Globalization can be endangering for smaller houses in different ways. One manner is the menace of addition in competition. Because globalization allows big companies to run in different states it has led to increased competition for smaller houses who can non vie with these big administrations. In order to back up smaller houses authoritiess and supranational governments have come up with steps to protect these houses. An illustration is through revenue enhancement alleviation, where smaller houses are exempted from payment of revenue enhancement or are charged lower revenue enhancement depending on their profitableness.


Drivers OF Globalization


There have been enormous paces in communicating and transit engineering enabling people and houses to rapidly cognize about and demand merchandises and services developed in other parts of the universe. Since the terminal of World War II, the universe has seen major progresss in communicating, information processing, and transit engineering, including the explosive outgrowth of the cyberspace and World Wide Web.


Governments and supranational governments after World War II committed themselves to taking barriers to the free flow of goods, services and capital between states. This has enabled administrations to freely merchandise across national boundaries in a much more flexible manner than was before.


Companies and authoritiess have developed services that ease the behavior of international concern. Banks have developed efficient agencies for companies to have payment in their home-country currencies. For illustration transnational companies such as Nike can sell sportswear to any state in the universe and are able to have payment through cyberspace banking.


Due to the betterments in transit and communications consumers know about merchandises and services available in other states and therefore, demanding better and differentiated merchandises similar to any other client in the universe. Consumers have besides become proficient at sourcing the Earth for better monetary values utilizing the cyberspace.


The force per unit area of increased planetary competition has persuaded companies to spread out their concerns into international markets. This is because companies are faced with competition from every portion of the universe coercing them to go more planetary in order to keep fight. Failure to making so would be ruinous for them.



Most authoritiess have responded to force per unit areas to heighten universe trade and the split between most Communists and non communist states.


Governments progressively realize that their ain states & A ; acirc ; ˆ™ involvements can be enhanced by collaborating with other states through pacts, understandings, and audience.


It is argued by many influential economic experts, politicians and concern leaders that falling barriers to international trade and investing are duplicate engines driving the planetary economic system towards greater prosperity.

Furthermore they say that increased international cross-border trade will ensue in lower monetary values for goods and services. They believe that globalization stimulates economic growing, raises the incomes of consumers and helps to make occupations in all states that participate in the planetary trading systems.


The construct of globalization has non been without any critics. One of the grounds to this is in the instance that occurred in December 1999, when more than 40,000 dissenters blocked the streets of Seattle in an effort to close down a World Trade Organisation meeting being held in the metropolis. The demonstrators were protesting against issues including occupation losingss in industries under onslaught from foreign rivals, which includes little houses. Downward rates of unskilled workers, environmental debasement and cultural imperialism of planetary media and transnational endeavors.

Other unfavorable judgments of globalization include its menaces on national sovereignty. States have lost their freedom to external control. Most powerful states affect the determinations and operations of other weaker economic systems. An illustration is the planetary economic crunch that affected the United States and was passed on to the whole universe because United States is a powerful economic system and its currency the US ( $ ) dollar is used in making concern worldwide.

Globalization has besides been criticised for its impact on the sustainability of economic growing. For illustration as economic growing takes place the universe uses more non renewable natural resources. And as production increases it adds to environmental spoil through toxic and pesticides runoffs into rivers


and oceans. Air pollution from mill and vehicle emanations, deforestation all

Negatively affect conditions and clime. This could subsequently impact the production in future.



Globalization has led to an addition in competition. Smaller houses compete for market portion with large transnational companies and other companies that have more resources than them. Since these large houses have fiscal power they are able to utilize more aggressive publicity ventures than smaller houses to pull a batch of clients and even winning some off from smaller houses.

For illustration, in Africa locally manufactured goods now compete with cheaper good quality merchandises from emerging economic systems such as China, India and Brazil. These cheap imports are replacing locally made goods and closing down little graduated table industries.


Large international companies such as Multi National Enterprises ( MNEs ) enjoy high economic systems of graduated table and do immense net incomes. This makes it easy for them to pull high quality employees due to their wage of higher rewards and wages. This is endangering for smaller houses who do non hold such an advantage and they end up losing their employees to such companies.


Globalization can take to additions in costs of production. Large international companies are able to bring forth more at cheaper monetary values and enjoy economic systems of graduated table. This poses a menace on smaller houses who are non able to make so.

Furthermore the decrease in the costs of production enables big companies to go through on the costs to consumers through lower monetary values. This makes merchandises and services of smaller houses expensive and hard to vie with those of larger houses.


Companies are now utilizing advanced engineerings to fabricate merchandises and in the proviso of services. Larger companies invest in research and development doing it easier for them to bring forth superior merchandises and services than smaller houses. Consumer gustatory sensations have besides become similar, this means that local merchandises and services now compete with international 1s.



Governments play a really of import function in back uping smaller houses because they are the 1s that formulate Torahs in the state and industries on behalf of companies. Smaller houses must be protected by authorities until they are able to vie on a planetary graduated table. One statement that supports this is the construct of protectionism. This is where authorities puts up limitations on imports and on occasion on exports that often give direct or indirect subsidies to industries to enable them to vie with foreign production either at place or abroad.

TAX Exemption

Tax additions costs which in bend reduces net incomes for smaller houses. For large international companies who make immense net incomes this is non ever the instance because they make immense net incomes and enjoy economic systems of graduated table, which enables them to be able to pay revenue enhancement and still keep profitableness. To back up smaller houses Government can give revenue enhancement freedoms or cut down revenue enhancement payments from these houses.


These are pecuniary or other resources a authorities grants to a house or a group of houses. They can be in signifier of expenses, stuff inputs, services and building of substructure. These will assist smaller houses to cut down costs in the concern and if this is done they are able to go through on these lower costs to consumers through lower monetary values. This will heighten the profitableness of smaller houses and enable them to win a significant market portion.


Governments can set up certain ordinance in the markets and guarantee that they are followed. For illustration they can curtail certain merchandises to be imported in the state, giving smaller houses the precedence to sell their merchandises foremost. They can besides let smaller houses to bring forth certain sums of merchandises and ulterior purchase them at sensible monetary values.

Other ordinance that authoritiess can utilize to back up smaller houses can be through limitations on the maximal sum of market portion that international companies can achieve in a given market. This will forestall larger companies from obtaining all the markets portion and go forth smaller houses without any market portion to vie for.



Smaller houses find the adoption processs from the bank cumbersome particularly in developing states. The authorities can back up such houses by loosening up the adoption processs so that they can be able to borrow money easy. This will assist smaller houses to hold easy entree to debt to finance.

Other than this authorities can besides give smaller houses some money from public financess to back up them. This can be in signifier of loan guarantee, direct loan and preparation and reding on how to pull off little concerns. Local authoritiess should besides back up smaller houses located in their countries.


Governments can cut down the cost of naming on the stock market so that smaller house can pull off to publish their portions. This will assist to increase the financess for smaller houses and besides assist them to pull investors and high a quality work force.


These are little loans that that the authorities can give to smaller houses to finance their concerns. The houses do non hold to pay any involvement on them and make non necessitate any collateral to obtain such loans as is the instance with most private Bankss. This will help little houses to bring forth financess to finance their concern ventures at lower costs.


Supranational authorization can be defined as the established or domains of influence held by separate states. A good illustration is the European Union ( EU ) . The support that these governments can offer to little houses is similar to that of the authorities. It would be helpful nevertheless, to look at some of their important support as outlined below.


This can be done where supranational governments negotiate with other states to let little concern to merchandise freely particularly in developing states. This helps little concern to hold entree to international markets, addition experience and can take to growing of the house. For illustration Common Markets for Eastern and Southern Africa ( COMESA ) negotiated this trade for smaller houses in the specified parts in Africa and it was made effectual in June 2009.


Export Agreements

Another manner to back up smaller houses can be through negociating for export trade understandings. This makes it cheaper for smaller house to sell their merchandises in other states and broaden their concern sphere.

For illustration member states of the European Union ( EU ) can export and import goods and services at no duties or any other trade instruments that make exports expensive.

These has enabled smaller houses in that part to hold entree to international markets and manage to import goods and services from states where they might be cheaper than in

their place states.


Merely like authoritiess, supranational governments can assist smaller houses obtain naming on the stock market. This can be done in different ways such as by easing the demands needed to be listed on the stock market as compared to large companies.

Some supranational governments such as the EU ( 2010 ) in their recent meeting suggested holding a separate stock market to back up little houses. they have besides said that easing the accounting criterions, every bit good as leting little houses to print quarterly studies and to bring forth less prospectuses when listing will assist little houses have entree to the stock market so that they can pull investors to back up them with support, have entree to a wider pool of resources and other benefits associated with being listed.


5.0 Decision

Globalization is non a new construct it has merely gained complexness in the recent old ages. There are a figure of statements in favor of globalization such as its stimulation of economic growing. However the statements in support of globalization are non without unfavorable judgment. These unfavorable judgments include its consequence on national sovereignty.

Governments and supranational governments are making a batch to back up smaller houses. One illustration of authoritiess support has been through the decrease of revenue enhancement or complete freedom from it.

Supranational governments are besides Woking manus in manus with the authoritiess by rendering their support every bit good. One manner they have done this is through trade trades which help to promote smaller houses gain entree to international markets.

In my ain position even as it of import to protect smaller houses, it might be good non to over underscore this because globalization can be honoring for smaller houses in different ways. For case, it can assist them to derive experience, formulate better competitory schemes for the hereafter and besides assist them to turn as they learn to vie on a planetary graduated table.

Therefore instead than over stressing on back uping smaller houses authoritiess and supranational governments can assist these smaller houses grow so that they are able to vie on their ain. This is because in future the challenges of globalization might be more complex and merely the large houses will be able to last and vie efficaciously in the planetary market.



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