Small Business and Globalization

Introduction

Businesses of all sizes are equally affected by the pressures of globalization. Even companies that produce the most localized consumption do not have ways of protecting themselves against competition brought forth by the integration of global economies. Any attempts by governments (at local, state, and federal levels) to protect against globalization have been futile; they could actually lead to economic disasters. Since companies cannot be protected against globalization by respective layers of government, it means that only they can come up with long-term solutions. Thoughts regarding exposure to the effects of global economic integration have resulted in some quarters claiming that small businesses are adversely affected compared to their bigger multinational counterparts (OECD, 2005, p. 15). Other critics have equally argued that it is big businesses that get more affected because of their exposure to the international market. Rather than deal with arguments of which party is right and which one is wrong, concurrent sections of this essay shall extrapolate how a small enterprise software developer based in the United States can take the effects of globalization as a blessing. This shall be achieved through two sections: the first explains some ways of exploiting the opportunities. The second explains how the hurdles of entering into the international market would be handled.

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Opportunities

Several would-be undertaken to ensure that the small software company exploits the international market. Among these measures would include investigating marketing opportunities in the countries which seem to be harboring competition. Among the countries to be focused on would be the BRICS (Brazil, Russia, India, China, and South Korea) that the World Bank (2008, p. 64) lists as the fastest-growing economies worldwide. From an entrepreneurial point of view, the robust economic growth in these countries means that citizens and small businesses have more disposable income (You, 2005, p. 304) that can be consumed or invested in software products being produced by this small company. Citizens of these countries are therefore potential customers that would be approached. Considering that these countries harbor some software developers already supplying or are interested in supplying the American market, the measure supplying to their countries would cushion the American-based company. The four countries constitute a growing market that will be on the rise for a long time (Freeman, 2007, p. 114). Therefore, positioning this company at the beginning of their economic up-swing will aid in the long-run competitiveness.

Globalization also offers the opportunity for the company to increase the number of products being offered. This is considering that businesses in different parts of the world do demand different software platforms to perform their daily activities. For instance, taxation and accounting practices in various parts of the world demand that businesses use specialized software. The company will be in the business of filling this void. Diversification of products will also be facilitated by the rapid adaptation of computer technology in parts of the world that have been using outdated physical bookkeeping systems. Indeed Lee and Keith (2007, p. 78) state that the rapid adaptation of electronic business systems in small and medium-sized enterprises in fast-developing countries is putting heavy pressure on software developers. Lee and Keith (2007, p. 81) further report that governments in most countries are demanding electronic data management that helps the inefficient collection of taxes. This has resulted in greater demand for the company’s products and services.

Other than focusing on the fast-developing countries to provide services and counter competition, the company shall take the advantage of its experience in dealing with clients in the United States to venture into other developed countries. The company’s track record in meeting customer demands will be on great advantage. In the process of gaining contracts, the company shall embark on aggressively marketing in several developed countries in order to start providing products and services immediately. Our current customers will be vital in the process of accessing the international market; they shall serve as referrals to target customers. The company aims at focusing on medium and small-sized companies in the developed countries. However, big companies based in those countries will also be included in the customer base. The company’s track record in serving small and medium-sized companies in the United States serves as evidence that competition in other developed countries will easily be subdued.

The above strategies do not mean that the company will relinquish the United States market. This market would remain the most important one, considering an investment that has been made in the country and clients being served. Indeed, the company will embark on jealously defending its home market as well as expanding the number of clients based in the country. The United States base will also remain company headquarters. In order to defend against competition from other countries, the company will continue producing high-quality products and providing specialized software maintenance. The senior management understands that only quality products and services, coupled with competitive pricing, will save small businesses against imports from low-cost producers (Freeman, 2007, p. 117). The current customer base should therefore stay assured that quality will always be high no matter the globalization pressure. Continuing with our current quality and competitive pricing will provide competition with rough time encroaching into our niche markets.

In addition to the above measures, being located on the American market has the advantage of being close to our customers, which makes it easier for the company to keep providing quality maintenance services. Indeed, this is a major competitive advantage that our company has over the competition, which may have a cheaper product but lack avenues to help clients during their time of need. In order to entrench this competitive advantage, the company is in the process of establishing various help offices close to consumer locations. These centers will be staffed at all times in order to improve reliability. This will also be implemented in developed countries and later in the developing markets. Indeed, providing round-the-clock customer service and product maintenance is slowly becoming a company policy. This is something that most of our competitors with lower products will find hard to implement. The bigger companies who have the resources to implement such extra services have the challenge of increasing their costs to astronomical levels, something that would not be well received by stakeholders.

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In order to reduce the cost of producing software, the company shall embark on using tacts applied by other software developers: outsourcing development to low-cost countries (Geese, 2006, p. 54). Most of the development of products will be done in the low-cost countries, which will lead to a reduced price for company products. In this regard, the company shall be able to compete with companies exporting their competitively priced products into the United States, developed countries that we will venture into soon, and eventually to the fast-developing countries that are developing these products. This shall lead to improvement in the company’s competitive advantage. Our clients in all these countries will therefore benefit from a reduction in prices. Outsourcing the labor-intensive development work will have the positive effect of providing senior management with more time to focus on other strategies that would lead to more competitiveness (Newton, 2001, p. 71). Some of these strategies would include more aggressive marketing of company products in respective markets.

Rather than establishing new software development centers in low-cost countries, the management is contemplating copying competitors who have chosen to enter into joint ventures with entrepreneurs in these countries (Porter, 2000, p. 158). This shall save the company lots of financial resources that could go into constructing software development centers. In addition, using investors from those countries shall help the company escape the agony of combing through regulatory frameworks in respective economies (Geese, 1996, p. 120). In addition to using investors based in target countries, company management shall ensure the employment of consultants that are conversant with these issues. This is considering that the company has never engaged in such an offshore venture. Having this initial offshore project succeed is a dream for company management and stakeholders. In addition to being a production center in the country or countries to be chosen, the center will also serve as a marketing point—where marketing activities in that country and the region will be conducted from. Despite the tight operational links with American headquarters, the center will be completely independent to run its business affairs.

The company is also considering entering into agreements with other independent software developed in several low-cost producing countries. Indeed, the quality assurance team is in the process of investigating products that meet the United States’ government standards. These companies will be reached at a later stage with the aim of being their distributor in the United States as well as other countries. In accordance with company policy of helping clients with maintenance, agreements on performing maintenance services on these companies’ products in the United States and other markets will be sought and equally reached. In helping these developers with marketing, the company is working on-premise that a significant number of enterprises have good products but lack ways of marketing them to potential customers (Word Bank, 2008, p. 71). In addition to helping these developers access the lucrative American market, the company is considering buying them in the long run. Acquiring such companies whose products the company understands and helped find market would help strengthen long term competitiveness as well as expanding product brand-line.

The Hurdles

This section shall explain several internal and external issues that the company uses during the process of avoiding exposure to the effects of globalization it could be trying to control. Among the hurdles of hedging against the effects of globalization by becoming an international player is trade barriers that are so prevalent in many economies (World Bank, 2008, p. 98). Before embarking on the process of developing software in low-cost countries and selling in other nations, the company has to understand trade barriers existing between different nations. This shall help in knowing the most friendly region of production. In addition, the company will need to be well versed in issues relating to trade pacts between countries—this will also serve as barometers of friendly production countries. Information regarding trade policies of respective countries and trading blocks is widely available, the most authoritative source being the WTO’s website.

Understanding intellectual property law in these countries will also be a vital assignment. This shall help escape the scenario where the company could end up establishing working relationships with establishments that can steal ideas and secretly develop a product for local the international market. This also applies to the products that the company will be marketing to the United States among other countries. Should the countries hosting software production happen to have weak enforcement of intellectual property rights, the company could find itself being exposed to serious legal cases arising from stolen ideas. This could be avoided by investigating completely the presence and enforcement of the intellectual property laws in those countries.

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Other than property rights, the company should ensure looking into the chosen countries’ legal framework (Wordbank, 2008, p. 14). This helps in understanding whether the current regime providing a conducive business environment for the benefit of local and foreign entrepreneurs. Such environment is shown in factors such as the number of days it takes to establish a business, collect licenses, ease of getting credit, labor, and bankruptcy laws among others. This is one of the reasons that consultants mentioned above should be incorporated in decision-making processes. The consultants should be in a position to explain present investment geography in various countries chosen by the company. In addition, it is vital that management contacts some players in the industry that have undertaken this measure before. The input from these individuals helps in explaining the mistakes made. Understanding common mistakes would help the company to navigate through challenges.

According to Porter (2000, p. 75), a country’s political risk, which refers to the degree of stability, should also be investigated before establishing operations. Indeed, it would be counterproductive to utilize lots of resources in establishing operations only for the country to erupt in chaos. This is something that the company cannot afford to ignore. All the countries to be considered to harbor company operations are those whose long-term political stability is guaranteed, the reason being that the company intends to operate there for a long period of time. The political risk in the countries can also be investigated through the existing laws and persisting rule of law.

Participating in the global market leaves companies exposed to foreign currency risks (OECD, 2005, p. 19). This company will not be immune to foreign currency risk exposure, especially given that product will be denominated in different countries. In order to escape the currency risk ignorance that Newton (2001, p. 71) says worsens the experience of startups companies, the management will ensure that necessary hedging is undertaken. Senior management should materialism themselves with different types of hedging and consequently communicate with bankers to discuss the most suitable form of hedging. Successful hedging against effects foreign currency hedging shall help the company in its long-term goal of becoming a formidable player in the global market.

Though the above-mentioned hurdles would be felt at the international level, the company will also face some internal pressure as it tries to expand and become a global player. First, outsourcing software development could make employees feel threatened and therefore become resistant to this important change (You, 2005, p. 315). Senior management should therefore embark on the process of dealing with the challenges faced by members of the labor force. The first step in achieving this should be to keep employees informed about the process. Employees should be made to understand change is inevitable needed for the long-term competitiveness of the company. For employees to be affected by the change, they should be well informed of the change early enough. This shall allow them the time to prepare mentally. The company should help them access counseling services, which the company should pay. In addition, employees whose jobs would be outsourced should be well compensated in order to avoid lawsuits. Employees who will be required to open company operations in other countries should be helped with their relocation (Freeman, 2007, p. 67). The support provided to these individuals should happen in three key stages: before relocation, after relocation, and in their reentry back to the company. Success to be attained in the help process would help set good precedence that will attract other experienced members of the labor force to take part in foreign assignments.

Though company management already knows some negatives and positives of this undertaking, it is vital that a cost-benefit analysis regarding the new operations be performed (Porter, 2000, p. 34). After performing the analysis, the country that provides the biggest benefits and minimal cost should be chosen as the host to operations. Other than undertaking a cost-benefit analysis for each of the target countries, company management should investigate whether operating in several geographical locations would help reduce the cost of production. A cost-benefit analysis should be accompanied by organizational SWOT (Strengths, Weaknesses, Threats, Opportunities, and Threats) Analysis, which would aid the progress of targeting markets that would lead to bigger returns on investments made ( Newton, 2001, p. 69).

The information contained in this essay shall help the company to exploit opportunities posed by globalization. Indeed, the use of these procedures would aid in avoiding the negative impacts that globalization would have had on the company. The success can be achieved faster when the management engages services of professionals who know more about dealing in the international market. This is considering that neither the company nor its management has had the experience of establishing operations in foreign countries. The wealth of information contained in consulting firms will therefore be of great help. The process can be smoothened by controlling some challenges that pose danger to the process itself. Among these dangers is current employees’ fear that their jobs would be taken to foreign countries. The company can overcome this major challenge through a constant flow of information to the labor force, provision of counseling service as well as providing send-of packages that would help employees before finding other occupations. Members of the labor force to be used in the establishment of foreign operations should also be helped to overcome their new work challenges. By following the procedures listed above, the software development and maintenance start-up will be on the right process of protecting against the effects of globalization, as well as bracing itself for the greater competition dawning on the industry.

References

Gasse, Y. (2006). Preparing small business and Entrepreneurs for global competition. Small Business and Entrepreneurship. Fall, 1-64.

Freeman, C. & Luc, S. (2007). Economics of Innovation. Cambridge: MIT.

Newton, K. (2001). Learning Firm. New York: Kluwer.

Lee, F. & Keith, N. (2007). Innovation in SMEs. Small Business and Entrepreneurship, Winter. 36-103.

OECD. (2005), SMEs verses Globalization. Paris: OECD.

Porter, M. (2000). World Competitiveness Report. (New York.: OUP.

World Bank. (2008). Doing Business. Washington: World Bank.

You, J. (2005), The Economic Theory of Small Firms. Cambridge Economics Journal. 29: 291-322.

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