Globalization refers to the process of international trade, the interchange of information, communication, the interaction between people and so on. This is simply a process that brings different countries closer to each other (not geographically). Globalization has been on a rise in recent times. It is mainly due to the advancement in technology that makes communication and traveling faster and easier. Here are several advantages of globalization for the countries involved and the people living in those countries.
Globalization, however, is not a completely new phenomenon. Then too, goods were taken to and from different countries for trade. People used to go to different places too. The governments of different countries can come to good terms too due to globalization. The growth of multinational companies is one of the major reasons for the rise in globalization. Companies start manufacturing in different countries to get cost advantages. This allows countries to get around trade barriers (tariffs, quotas etc.), to save transport costs and to reach different markets. There are also several advantages of globalization for small businesses which are extremely important.
Advantages of Globalization for small businesses
Before discussing the advantages of globalization to small businesses, let us completely understand what is meant by small businesses and when can a business be declared as small.
Small businesses are organizations owned by private parties, have a low number of employees and earn quite less revenue than a larger business. The maximum number of employees a business can have to be qualified as small as 500 and 1500 in wholesaling and manufacturing, respectively in the USA. The annual receipts of a small business are less than $21 million.
Businesses are interested in qualified as small due to the many perks that small businesses receive in the form of government incentives: subsidies, grants, and aids etc. Small businesses are a very integral part of an economy. Together, many small businesses generate high revenues for the economy and hire a large number of people. These small businesses have a potential of becoming larger in the future if they work effectively and passionately.
Now, let us get back to the advantages of globalization for small businesses.
Small businesses get access to cheaper labor. Globalization leads to increased movement of labor from one country to another, so small businesses can also benefit from this along with larger businesses. Adding to this, they get a big pool of labor to choose from which has workers of all specialties, talents, education and so on. With globalization taking place, small businesses do not need to rely on local labor which might be expensive and not much efficient in the job needed. Labor from abroad also bring with them new practices and ways of doing things.
One of the advantages of globalization to small businesses is the technology. Firms from abroad bring with them newer technology and expertise which can lower the costs of small businesses by reaping the economies of scale. Moreover, high-tech machinery would make the production of standardized and good quality products possible, and these machines are good enough to not break down again and again.
Small businesses get access to better funding during globalization. Possibilities for receiving investments and loans increase. There are many banks and other organizations that are especially present to fund small business start-ups that have good business ideas, but do not have the required investment to turn their ideas into reality. Moreover, Small businesses have much more opportunities of expanding in a global economy as compared to a single economy. A small business specializing in something can sell its products in different countries. These products are mostly handmade, crafty goods which have high demands in many countries and can generate high revenues.
Another one of the advantages of globalization for small businesses is the low costs. With globalization, comes the possibility to outsource much work to other specialized firms. These firms can do the same work at much lower costs. Moreover, these specialized firms can enjoy economies of scale due to a large amount of production. So, they face lower costs, and hence, their prices are low too. Adding to this, small businesses can get cheaper raw material and labor (as per earlier discussion) for production from other countries while the prices locally might be higher. Many of the trade barriers including tariffs and quotas are not put upon small businesses. This allows the small businesses to enjoy these cuts in barriers by exporting more finished goods to other countries and importing cheap raw materials from other countries.
Boost to tourism
Globalization gives a rise to tourism too. Tourists spend lots and lots of money while visiting other places. Now, a large chunk of the tourism industry comprises of small businesses offering specialized services. These services for customers include things such as souvenirs, hotel services, food services, recreational activities and so on. The tourists give a rise to revenues of these small businesses. They, in turn, hire more employees to meet the increase in demand. This benefits the entire economy not just one particular small business.
When globalization happens, various companies from different countries come into interaction. Big multinational companies offer learning opportunities for small businesses. Every business is once a small business. Each business’ journey of becoming big and successful is unique and exemplary. Small businesses can learn from those big businesses the art of getting successful and expanding.
Moreover, these large businesses can also hire small businesses for doing jobs for them. For example, a big chocolate manufacturing company might hire a small business for the packaging of its chocolates. This way, the small business will gain specialization in packaging products for big multinational firms. This helps them receive orders from many different firms other than the same chocolate factory. Small businesses can achieve economies of scale through this high level of production and the lower costs mean higher profits.