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Small business refers to companies that are generally privately owned and operated, which fall below certain criteria in terms of number of employees, volume sales and total value assets (Businessdictionary, 2010). Small business is very important to the nation, which act as Gross Domestic Product (GDI) contributor for the nation. In this globalization, some of small businesses are expected to have a potential to grow into Multinational Corporations (MNCs). The content of this report is the description, analysis and evaluation based on issues that small business is facing during its growth into Multinational Corporation (MNC) in this global society. This report will provide information about small businesses and MNCs activities in globalization era followed by analysis of globalization. At the end of this report, a conclusion will be provided.
Small businesses and MNCs in globalization
Small business refers to company that is determined by some criteria in terms of relationship with other affiliates, annual receipt and number of workers (Fedaccess, 1999-2010). MNC refers to a corporation that operates business in more than one country (Antony, 2010). Globalization refers to process of business interaction and integration among the people and companies across the globe (Levin, 2010). Globalization in the world of businesses leads the all kind of businesses toward multinational business. In this business globalization both small businesses and MNCs have important activities and role for the nation. Small businesses can be considered as GDP contributors and MNCs as FDI contributors to the nation. Both small business and MNCs activities drive the nation's economic growth greatly. However in this business globalization, all type of businesses in the world face some issues to compete perfectly as small businesses or as MNCs.
The growth of small business and its issues (financial and organizational issues)
Global society force many businesses in the world to adapt with globalization, especially for the small businesses. International business has created another trend that made small businesses growth into MNCs. When large businesses come with business operation that span the globe, some small businesses also tried to involve in business globalization (Hill, 2007). However, small businesses are continuously countered with issues before they can perfectly compete in global business. They often faced by financial and organizational issues (Maranga, 2010).
In this business globalization, small firm sometimes caught by several issues such as financial and organizational issues that frequently causes bankruptcy. Financial issues such as: poor cash flow, lack funds, high taxes, inadequate sales and business loans are mainly related to the cash-flow liquidity of the small businesses. Finance is the vital part for the small business because it's supporting the small firm's growth, such as: in matter of innovation and technology. Small business growth rates are very dependent on its financial assets. Thus, the unavailability of financial assets would lead the small business unable to grow, or even worse, bankruptcy (Carpenter & Petersen, 1998-2001).
Normally these financial issues are caused by poor organizational management rather than economic condition. An organization issues that normally occurs are: (Carter et al, 2007)
Lack of a long term business plan; most business plan are a summary of business organization goals, mission and how these will be apply in business. (Fimark, n.d.). However, some firms are ignoring the importance of business plan, which causes some problems, such as: financial problems.
Lack of management skills; lack of management skill is normally resulting in incompetent employees that could bring troubles for the business.
Ignorant of laws and requirements; starting a business need many legal requirements. Managers need to apply for licenses, depending on the business itself. However, some firm do not realize the requirement of certain licenses to run business (DK, 2003-2010).
Ineffective promotional problems, target market and lack of knowledge about pricing; these organizational issues are related with an availability of information that is vital for high-quality decisions in all features of business process. The lack of those information leads to ineffective decisions that cause financial issues.
Analysis of globalization and free trade effect on small and large businesses
Free trade refers to a situation where government does not attempt to manipulate throughout duties and quotas what its people can buy, produce and sell from or to other countries (Hill, 2007). Free trade is one of the elements in business globalization. Free trade affect both small and large businesses in the nation in both positive and negative manner. The positive impacts are as follows: (Mohr, 2010)
Expanded markets; which allow firms to expand their products or services to other countries. For example: a firm from Thailand could expand their businesses to USA by producing the product domestically and export it to USA at the same cost as other larger businesses or MNCs.
Lower cost of production; the ability of firms to import cheaper resources from other countries. For example: a firm from USA import their raw material from and assembly their product in China, where the cost is cheaper than USA's domestic resources.
Wider pool talent; free trade give firm opportunities to get their employees from other countries.
Expanded insurance options; the opportunities that allows firms to get insurance solutions from other authority that may have a cheaper cost or better features. With the appropriate and better insurance, businesses can expand their market with proper protection.
On the other hand, free trade negative impacts are as follows: (Chmielewski, 2010)
Adverse working conditions; some firms in underdeveloped nations attempt to reduce costs to gain an advantage in price where many employees in these firms have low wage, poor quality working environments and even forced labor.
Environmental damage; to increase business productivity, some businesses ignore its environment entirely and neglect the local business environmental laws.
Job loss; cheaper labor from other countries make the domestic labor loss their jobs.
Difference among economist; Free trade can cause commotion in domestic economy sector, such as long-established industrialized sector unable to adapt in the new competitive business environment.
For most large businesses like MNCs, free trade brings more positive impacts and advantages than the negative impacts. It's because most of multinational corporations have enormous powers and influences in many sectors (Shah, 2002). MNCs hold most important roles and activities to the nation, which always provided them with more power, such as: employees, assets, resources and affiliates in global businesses. Those powers are needed by the MNCs to improve their technology and innovation in order to compete perfectly with competitors. On the other hand, small businesses that do not have enough power like other MNCs are in disadvantage where they are less competitive than others due to fewer resources, less employees, and obviously less in innovation and technology which are vital to compete perfectly in globalization.
Competition between small and large businesses in the business globalization
In business globalization, especially in matter of free trade that creates stiff competition between small and large business, most small businesses are caught by some financial and organizational issues when it enters the global market. In order to compete with other large businesses, small businesses must have good business strategies. The strategies are as follows: (Rodriguez, 2003)
Provide exceptional customer service; offer better customer service than other firms which at the same time build better relationship with customer.
Care for the customers; offer customer loyalty programs with the intention to increase overall customer satisfaction and loyalty.
Consider partnership with similar businesses; By working together with other firms it allows small businesses to decrease some costs and increase the capability to compete in globalization.
Develop a niche and focus on it; Find an opportunity by looking for gaps in the market that are have good prospect to develop a niche and keep focus on it. For example, a small firm developed an event organizer business, which has all the supplies necessary for well-designed parties and the professional workers that can provide it professionally.
Take care of employees; Finding qualified employees and do proper training for increasing the business quality.
Use technology as a business advantage; Using technology such as internet, telephone and television as a media telecommunication that provide information to the customer.
Present a very professional image and store character; Professional image and store character are essential part for competing with large businesses. It can make small businesses more dependable and trustworthy in customer's mind.
Small businesses are important to the nation as GDP contributor for the nation. Small businesses are generally privately owned, which fall below certain criteria in terms of number of employees, volume sales and total value assets. Global society forced small businesses to adapt with globalization and grow into larger international businesses. However, small businesses are continuously countered with financial and organizational issues when it enters the globalized market.
Globalization brings free trade to the business. Free trade also gives both positive and negative impacts to the small and large business. Positive impacts such as: expanded market, lower cost production and wider pool talent. Negative impacts such as: job loss, different among economist and adverse working condition. In order to compete in globalization, small firms must have good business strategies that follow consideration of working together with similar businesses, using technology as a business advantage, taking care of employees, etc.