Post on 28-Jan-2023
Ashish Bhatnagar (Assistant Professor)DCET BUSINESS SCHOOL,
IISE Campus, Kalyanpur, Kanchana Bihari MargLUCKNOW- 226 020 (INDIA)
Phone# 09219262881, email: ashish_mms@yahoo.com
Abstract
Today, globalisation is a major driver that has an impact on
nearly every economy. No country can any longer rely
exclusively on its local resources, capacities and
capabilities to steer its economic growth. Globalization is
leading to the structural transformation of the firms and
nations, and is creating new relationships and new
dependencies.
It is an ongoing process that presents opportunities; as
well as risks and challenges for the Small and Medium-sized
Enterprises SME’s which, although, account for a high
proportion of employment in and exports from all countries
across the world, are already very limited in resources.
A major strength for many SME’s is their close customer
contact and their ability to maintain close customer
relationships. However, in the prevailing business
environment even smaller and locally oriented businesses
have to see themselves in a global context.
All SME’s need to address certain key issues regarding
cooperation with international partners and how it can
benefit them.
The first section of the paper tries to look into what
globalization is. Then we try to analyze the major drivers
and consequences of globalization. what are the major in the
light of major constraints faced by SME’s and how far this
internationalization would help in addressing their
problems.
Globalization
Today, globalisation is a major driver that has an impact on
nearly every economy. No country can any longer rely
exclusively on its local resources, capacities and
capabilities to steer its economic growth. There is a
profound need to integrate its economy with the global
economy. It has been the growth in the world’s capacity to
innovate new goods and services, which has provided the main
engine of economic progress. These developments have been
mainly market driven, but the extent to which they have been
translated into welfare enhancing goods and services has
been influenced by the actions of national governments. As
technological advances continue to push the limits of
growth, firms are forced to look overseas for their inputs
and markets.
The world today is indeed a very different place to the one
into which most of us were born. The hegemony of UK in the
19th century and the US in the 20th century has been replaced
by a triarchy of economic power comprising the US, Japan and
European Union. Issues to do with the quality of life and
the structure of governance are in the process of a radical
rethinking. It is not just competitiveness and development
which has risen to the top of the political agenda, but
sustainable competitiveness and development. Anthony McGrew,
in a jointly edited book, writes
“Globalization refers to the multiplicity of linkages and
interconnections between the states and societies which make
up the present world system. It describes the process by
which events, decisions, and activities in one part of the
world come to have significant consequences for individuals
and communities in quite distant parts of the globe. On the
one hand, it defines a set of processes which embrace most
of the globe or which operate worldwide; the concept
therefore has a spatial connotation. …On the other hand it
also implies intensification on the levels of interaction,
interconnectedness or interdependence between the states and
societies which constitute the world community.” (p 23)1
The term ‘globalization’ became fashionable when it began to
replace words like ‘internationalization’ and
‘transnationalization’ as a suitable term to denote the ever
intensifying networks of cross border interaction in all
domains of human activity: social, political, cultural,
financial and economic.
Globalization is leading to the structural transformation of
the firms and nations, and is creating new relationships and
new dependencies. The main causes of globalization are well-
known. The first is the pressure on firms- by consumers and
competitors alike- to continually innovate new products and
upgrade the quality and/or reduce the price of existing
goods and services. At the same time, the escalating costs
of research and development, coupled with ever shortening
product life cycles are compelling firms both to search for
wider markets. The second cause of globalization- which in
many ways is better described as a removal of an obstacle-
is the renaissance of market supporting policies pursued by
national governments, and the growth of market led regional
integration.2
Since the mid-1970s, the fastest-growing countries have been
those that have managed to industrialize by developing a
competitive advantage in manufactured exports to the point
where industrial exports have become the engine of growth.
The main reasons for the growing importance of international
competitiveness are technological. The rapid pace of
innovation – and the resulting promise of productivity
increase – makes it more costly to insulate economies from
international trade and investment. Since new technologies
benefit all activities, traded and non-traded, rapid access
to such technologies in the form of new products, equipment
and knowledge becomes vital for national welfare. Insulation
from global markets and technologies is no longer a viable
option for any developing country.
Globalization refers also to the increasing mobility of
ideas, information flows and consumer tastes. It is the
corporate business response to the changed and changing
international business environment. The process has its
roots in four key developments, the first two of which are
arguably the most important:
Policy changes in the world economy, specifically the
liberalization of trade and capital flows, the
deregulation of markets, and privatization, which has
opened up new investment opportunities in most countries;
Accelerating technological progress that has changed the
rules of the game for both Trans National Corporations
(TNCs) and for host developing countries and enterprises
in these countries;
New organizational structures within companies, in part
made feasible by technological advances in the
information and communications industries; and
The shift of economic power from the north and west to
the developing countries, especially in Asia - a result,
as much as a cause, of globalization.
Major Drivers of Globalization
Globalization implies an evolving pattern of cross-border
activities of firms involving international investment,
trade and cooperation for purposes of product development,
production and sourcing, and marketing. The main driving
force behind globalization strategies of firms is no
different from that which drives international trade. Firms
seek to maximize profits, given the constraints they face.
Changing or vanishing constraints imply new profit
opportunities and thus require new strategies of firms. In a
way, globalization is nothing more than the entrepreneurial
response to a changing environment, while the prime motive
of firm behaviour - constrained profit maximization -
remains unchanged. One of the most important reasons for
globalization is that large parts of the world have become
industrialized since the Second World War. Many Developing
Countries (DCs), especially in East and South-East Asia,
have attained, or are about to attain, the status of an
industrialized country. This successful catching-up has
increased the number of suppliers on world markets. Global
production capacities and international competition have
increased, and so have the opportunities to exploit market
niches. This process will gain momentum once the large
markets of the People’s Republic of China, India and Central
and Eastern Europe, which represent roughly one half of the
world’s population, are fully integrated into the world
economy. Put differently, the constraint of market size,
which may have hindered globalization strategies in the
past, has become less relevant and probably no longer
applies at all. At the same time, other constraints that
prevented firms from implementing globalization strategies
have disappeared. Thanks to the micro-electronics
revolution, communication technologies have undergone a
dramatic change during the last decade, and new production
and organization technologies such as CAD (computer-aided
design) and CIM (computer-integrated manufacturing) have
evolved. Successive GATT rounds have substantially reduced
tariff barriers to trade, and capital markets have also been
liberalized, especially during the 1980s. Many business
services have become internationally tradable. As
transaction and communication costs fall, the proximity
between sellers and buyers, which has traditionally been
considered to be essential for many services, figures less
prominently. Most important in this regard is that financial
capital has gone global. The deregulation of other business
services such as banking and insurance also offers new
opportunities for the tradability of services. Hence,
standardized business services have become available around
the world, which, in turn, has made the international
fragmentation of production feasible. As a consequence of
all this, not only the constraints on firms, but also on
governments have completely changed.
The Consequences of Globalization
In an increasingly borderless world, where competitiveness
is driven by liberalization and technological progress,
developing countries face serious threats as well as
potential opportunities. The era of globalization is
described as “one of unprecedented opportunity” for
developing countries, while their successful
industrialization is one of the major reasons for
globalization. For developing countries, globalization
comprises both the participation of local enterprises in
international production of goods and services and increased
exports of goods and services by domestic export-oriented
firms to global markets. Unfortunately, however, there are
down-sides to globalization. There is, in John Naisbitt’s
words, “a global paradox”3. The most immediate and visible
consequences of the down-side- which all countries of the
world are currently experiencing is, the increase in
unemployment as new generic technologies substitute capital
for labour, competitive pressures, and the introduction of
more market oriented policies. While, innovation-led
production system offers more purposeful, responsible, and
rewarding job opportunities for those in work; it does not,
in itself, help reduce unemployment-at least not in the
short run. This is because the new system requires a
different mix of labour skills than of the one it is
replacing, and to match these needs, not only do labour
markets need to be more flexible, but quite huge retraining
programmes are needed. Rapidly rising wages, even under
labour surplus conditions, are forcing management to move up
the technology ladder in search of increased productivity to
justify new investment and retain competitiveness.
If global economic interdependence offers the prospects of
higher productivity and living standards, it also more
closely links national economies to exogenous financial and
other disturbances. Economic disturbances originating in any
one of the five or six economies are now electronically and
instantaneously transmitted across the globe, with possibly
devastating effects on nations which may have had nothing to
do with the causes of the shocks.4
If a globalizing economy may lead to greater economic
instability, it may also have unacceptable implications for
national security, social dumping, environmental erosion,
the spread of epidemics, drug abuse, terrorism and ethnic
violence. Bad news travels just as fast as good news; and
crime, disease and war know fewer territorial boundaries
than once they did.
While the forces of globalisation are leading to convergence
of the spending habits of the world’s consumers, they are
also exposing substantial differences in the way people
think and behave. Indeed, not all countries welcome the
effects of globalisation, as they fear it may erode their
traditional life styles. On the one hand the universality of
such goods as the motor car, the television set, the Sony
music system, Coca Cola, jeans and pop-music are leading to
cultural convergence. On the other, most people want to
remain loyal to their distinctive customs and institutions.
The Small and Medium Enterprises (SME) Sector
It has been universally recognized, that SMEs have become an
indispensable segment of every economy and have been playing
an enviable role in generating new employment,
notwithstanding the level of economic development of a
nation. Besides, they have been contributing substantially
to the manufacturing sector’s output and its exports. In
most developing and under-developed countries, SMEs
virtually constitute the entire industrial base. Of late,
SMEs have also emerged as dominant players in the service
sector.
Countries do not use the same definition for classifying
their SME sector. However, the three parameters generally
applied by most countries, singly or in combination are:
Capital investment on plant and machinery.
Number of workers employed.
Volume of production or turnover of business.
Although, there are no universal quantitative norms of
defining an SME, they can be clearly identified in any
developed or developing country and the factors setting them
apart may be qualitative and comparative5.
Most SMEs are one-person shows or are run by two or three
individuals, usually relatives, friends or business
partners, who take most of the decisions. There is usually
no distinction between private and business assets, and
subjective and personal factors play a large role in
decision-making. The personal stakes SME entrepreneurs have
in their businesses are much higher than those of corporate
executives in their companies. This enhances the risk and
commits entrepreneurs even more strongly to the success of
their ventures.
The comparative factors have to do with the way SMEs are
situated vis-à-vis large enterprises in the corporate
sector. They are small and medium-sized in comparison with
the large corporate entities with which they share a given
economic space. SMEs therefore come in varying sizes and
SMEs in one country may well be larger than the “big”
companies in another. The interesting feature is that,
notwithstanding their absolute sizes, the problems
confronting SMEs appear to be similar in most countries
whether developing or developed.
Globalisation and the Role of SMEs in Development (The
Challenge)
Generally, SMEs are considered the engine of economic growth
in most Asian economies by their sheer number and by virtue
of their significant contributions to employment generation,
value added and foreign exchange earnings and savings, as
well as other economic and social contributions. Hence, the
search for national competitiveness and promotion of SMEs
are not a dichotomy, but a necessary complement.
Many Asia-Pacific countries consider SMEs, comprising about
95 per cent of all establishments, as the backbone of their
economies and recognize their important role in socio-
economic development. SMEs are perceived as key players in:
a) ensuring market economy with competition in the market,
b) modernizing industrial structure to penetrate new
markets, c) contributing to the improvement of balance of
payment, d) contributing to socio-economic development of
the regions, and e) creating job opportunities.
SMEs are also promoted as they contribute in the building up
of a middle class group in society, otherwise known as the
missing middle and in helping to distribute income
equitably. They are a source of innovation and a breeding
ground for entrepreneurs and technopreneurs.
Globalization is the extraordinary explosion of both
technology and information, in ways that have considerably
reduced the twin concepts of time and space. It refers to
global economic integration of many formerly national
economies into one global economy, mainly by free trade and
free capital mobility propelled by Information and
Communication Technology6.
SMEs are deeply affected by the globalization of the
markets. Globalization has rapidly gained momentum as a
result of certain factors. They are:
Rapid technological advances in accessing and
disseminating information have resulted in reduction of
costs and complexities of going global. The world markets
are now open to new products and services, and the SMEs
which were earlier limited by cost considerations, are open
to export opportunities.
The protective tariff and non-tariff barriers, which
separated domestic markets from international markets, are
slowly coming down. This has given the SMEs an option to
either operate in the protective domestic environment or
accept the challenge of facing competition in the
international arena.
Efficient international division of labour has now become
a necessity leading to outsourcing, sub-contracting and
other cooperative efforts.
It is becoming increasingly necessary for the SMEs to be
internationally competitive in order to function effectively
even in the domestic markets. In a dynamic environment
marked by fast technological changes, achieving and
retaining a competitive edge are both a necessity and a
challenge. Competitiveness is the key to success and
sustained growth in global operations7.
The SME segment has its strengths and weakness and therefore
created a niche for itself by it’s unique positioning in
terms of offering value added services and being flexible
and yet cost effective. Being a small setup, the decision
making process is quicker and services and products offered
are more customizable. Accessibility is easier and
responsibilities are easily allocated on the hierarchy. The
entrepreneur is ideally the sole decision maker or at the
most a small group of people who reach a consensus
relatively easily. The committee approach is avoided and the
lag time between getting an offer on business opportunities
and grabbing the offer is kept at a minimum. The cost of
operations is lower, overheads are controlled and therefore
the end product / service is highly price competitive.
When it comes to the question of improving the competitive
strength of their SME sector, the developing countries,
despite realizing the need and urgency to do so, are
constrained to extend the required kind of support to them
because of their own limitations, some of which could be
grouped as under:
Financial limitations
Lack of necessary infrastructure
Lack of know-how and expertise
Lack of expertise to forge cooperation among SMEs of
different countries.
Problems related to transition such as rigid mind-set,
resistance to change both at administrative and
enterprise levels, etc.
A study conducted by the International Trade Centre (ITC)
has shown that the major constraints faced by SMEs continue
to be in the critical areas of access to finance, technology
and markets8. On the financial front, affordability,
accessibility and timeliness of short-term and export credit
are the major constraints. SMEs have limited access to
capital markets, due to owner-preferences and minimum
requirements of capital markets. Hence, they rely heavily on
bank loans and the often limited–financial means of their
owners. In addition, Hauser (2000) notices, that, although
smaller companies tend to have a higher turnover yield,
larger corporations are in a better position to cover
temporary losses. They normally have much higher financial
and non-operational incomes and a better equity
capitalization. As a result, SMEs tend to have more
difficulties to finance investments or Research &
Development (R&D) projects9.
The relatively small size of SMEs often leads to
disadvantages in economies of scale. Hauser (2000) points
out that this small size leads to the SMEs greatest
strengths – their ability to offer customized and
specialized goods and services on the one hand and on the
other; it implies that many SMEs cannot make use of cost
advantages in mass production. Furthermore, some types of
costs are not variable in relationship with company size.
Examples are devices for environmental protection (e.g. gas
cleaning equipment), which are often under- utilized in
smaller companies, or R&D costs. R&D as the basis for SMEs’
strength in innovation and flexibility has to be undertaken
on a certain minimum scale in order to lead to results. As a
result of lower sales and costs, which cannot be further
reduced, SMEs often incur a higher proportion of fixed costs
compared to larger corporations.
SMEs require facilitation in making the right choice of
technology, as well as in locating and acquiring technology
suited to their specific needs and open to periodic
upgrading. Underdeveloped testing facilities, poor national
certification and quality counselling infrastructure and
poor quality commitment of SMEs hinder the entrance of these
companies to internationalization. SMEs are often poorly
placed to deal with technical change and upgrading. Not only
do they lack the information and resources to access new
technologies and skills, they often do not know how weak
they are. They may be unaware of competing technologies in
other countries. They may not realize the nature of new
skills and techniques needed to keep up. The problem is much
greater for SMEs in the traditional and rural sectors of
developing countries.
Another major constraint faced by SMEs is lack of
entrepreneurial, management and marketing skills. While most
owner-managers and start-up entrepreneurs are experts in
their products and services, often the lack of managerial
skills, hinder their long-term success.
Small enterprises need a wide range of information from
issues like how to establish own small company, laws and
regulations governing them, taxation, custom regulations,
business advisory services, training opportunities,
financing sources, local and central tenders, and many
others. In many cases only part of this information needed
by entrepreneurs are available in an orderly form, and
access to this information is difficult and expensive.
Compared to larger enterprises SMEs are also at a strong
competitive disadvantage when complying with administrative
regulations and bureaucracy. Special constraints are in
connection with regulation on establishment of a company,
licensing, taxation and control of central and local
governments.
In analyzing national competitiveness with reference to
SMEs, we can refer to the classic work of Michael Porter
(Competitive Advantage of Nations, 1990). He formulated his
“diamond” of four conditions which affect SMEs and
countries, namely: (a) factor conditions, (b) firm strategy
and structure, and (c) related and supporting industries.
The resource-based and labor-intensive nature of majority of
SMEs in many developing Asian countries is consistent with
the structure of their comparative advantage. In principle,
firms in the provinces should have an advantage over firms
in the urban areas because of their access to natural
resources and cheap labor pool. However, Porter suggests
that firms employing natural resources may lack incentives
to improve product quality and to innovate in order to be
competitive. Therefore, they are not well equipped to
function within a dynamic environment. SMEs lack the human
resources, financial resources, knowledge, and
infrastructure available to large enterprises.
In terms of firm strategy and structure, SMEs are at a
disadvantage because of the characteristics of the
entrepreneurs and management. Because of shortcomings caused
by low levels of education, management by experience,
family-type business, domestic market orientation, and lack
of commitment to improve product quality and productivity,
the development of SMEs has rather been retarded in several
Asian countries.
However, since the new generation of entrepreneurs is better
educated, these conditions are changing. The new breed of
entrepreneurs, including second generation entrepreneurs, is
beginning to operate their businesses using modern
management techniques.
Related and supporting industries are typically SMEs. The
effect of the crisis on SMEs depends on the extent of
existing backward and forward linkages with larger companies
and foreign investors. Because linkages are strong with
their mother (contracting) firms in terms of derived demand,
the economic welfare of SME supporting industries is
dependent on the situation of large enterprises.
On the whole, there are advantages and disadvantages for the
supporting industries. On the positive side, consolidation
and upgrading in the supporting industries will occur and
the more viable and competitive ones will emerge.
SMEs face a shortage of professional management capability
to improve their efficiency and the quality of products to
meet internationally accepted standards. Porter advocated
that assistance be provided in terms of long-term capital
supply and low-interest loans, which would help and motivate
SMEs to move and gain a cost advantage by modifying
production processes and relocating factories, where labor
costs are still cheap. As for long-term planning, he
encouraged a larger ratio of SME run by technical
entrepreneurs, or technopreneurs. Along this line, he
commented that at present educational institutes are places
for teaching, not for learning.
Emerging Roles and Policies for SME Development (The Road
Ahead)
Policy measures in the twenty first century should include
the removal of remaining policy biases against SMEs in the
trade and investment programs as well as handicaps imposed
by the smallness of their business operation as against
large enterprises. SME development policy should have a new
dimension as SMEs become integrated into the global economy
and have to be part of the quest for international
competitiveness.
Government’s role in promoting SMEs will require some
paradigm shift as a desirable response to, and in
anticipation of changes in the national and international
environments. Some of these environmental consideration
include demands for increasing industry productivity,
enhancing competitiveness locally and internationally;
shifting comparative advantages, technology development in
hardware and software; technology management, shift from
resource and skilled-incentive industries to knowledge-based
industries, reduced government budget for personnel, and the
implementation of various regional and multi-lateral trade
agreements, etc. Among these paradigm shifts are:
a. Self-Reliant Policy
Government assistance policies to SMEs will be characterized
by the following principles: (a) help SMEs to help
themselves, (b) extend assistance, not protection to SMEs,
(c) integrate SMEs in overall economic development, and (d)
maintain a pro-business environment.
b. Stronger Private Sector Empowerment
The private sector, especially membership organizations like
industry associations, chambers and other interest groups,
is becoming assertive in its advocacy role. They will
require greater role in policy deliberations and decision
making in matters that affect them. This means that there
will be more public-private sector partnerships in
government SME development councils and promotional bodies
as well as joint sponsorship of activities. This includes
empowering membership organizations to self-regulate their
ranks and to perform regulatory functions usually done by
government at present such as registration and certification
schemes. This trend is also consistent with government’s de-
regulation, outsourcing and decentralization efforts.
c. Private and Non-Governmental Business Development
Services (BDS)
While more SMEs demand better, more efficient, and timely
delivery of services, governments’ ability to achieve
greater and wider access of BDS will be hampered due to
plans for leaner but more effective government machinery.
Governments will surrender some of their traditional role of
providing a wide gamut of BDS to the private sector.
In the face of reduced personnel, governments will stop
being a supermarket and one-stop facility for various
services, but rather will become ‘godfathers’ or sponsors in
institution building and strengthening of private and non-
governmental organizations (NGOs) rendering BDS. They will
facilitate and support the rise of private and non-
governmental business development services to provide
assistance in management, marketing, technology, finance,
etc.
Governments will also tend to outsource from the private
sector, subcontract services, and even enter into selective
schemes such as concessions, joint ventures, management
contracts, leasing contracts, and turnkey projects. This
also includes subsidizing services, at least temporarily,
rendered by the private sector to assist SMEs and
implementing grants scheme such as voucher system and funds
subsidy to stimulate market demand for BDS by both SME
clients and service providers.
d. Information-Technology Driven Assistance
Following the wave of information revolution, governments
will give emphasis in investing in information technology
infrastructure to raise the technological and competitive
consciousness of industries and to provide entrepreneurs
with greater access to opportunities in the domestic and
world markets. It will promote greater use of computer
applications, e-commerce, virtual enterprises, etc. This
thrust will also involve educational institutions to prepare
the students for skills demanded by the private industry for
the 21st millennium, to produce more local talents in
information technology, and to develop innovative
technologies.
e. Greater Linkage between SMEs and Large Enterprises
Governments will continue to give greater emphasis in
stimulating greater linkage between SMEs and large
enterprises through various incentives and services. The
direction will go beyond promotion of existing
subcontracting arrangements and foster relationship,
business matching or need-seed information exchange. It will
move in the direction of mentoring and incubation system
wherein BDS providers, whether government, private
consulting firms, or large enterprises, will systematically
coach and guide the start-up, growth, management and
technological upgrading of selected SMEs.
f. Industry Cluster Approach
To achieve positive synergies in quantity and quality of
assistance, governments will move towards promoting market-
driven industry clusters and networks. Important clusters
may be selected based on geographical concentration,
sectoral specialization, ancillary relationships, value
added as well as supplier-vendor value chain contributions.
Collective growth approaches have been proven to help SMEs
in lowering transaction cost, facilitating mutual learning,
sharing best practices and facilities, as well as in
enhancing the beneficiary industry’s domestic and
international competitiveness.
Characterized by high connectivity, industry clusters have
also been known to effect innovations in production and
processes, product designs, packaging, purchasing, and
distribution.
The impact of globalization and liberalization can be
perceived from two viewpoints. It can open new opportunities
for SMEs in developing countries to acquire technology from
abroad and that increased competitiveness in technology
markets has made technologies cheaper and more accessible.
This may indeed in some industries and sectors, while in
others technology remains costly and access is still
difficult for SMEs in the developing world. Acquiring
technologies and the technological capacities needed to
master technologies involve time, effort, cost and risk, and
complex interactions between firms as well as between firms
and institutions.
However, effective technology transfer does not depend
solely on the accessibility and the terms and conditions for
the acquisition of technology, but also on the local demand
conditions and on the prior building up of the technical and
managerial capabilities which determine the ability of firms
to absorb and master the acquired technology.
On the demand side, the inherent smallness of most SMEs and
markets in developing countries, as well as weak
distribution systems and marketing channels and the lack of
support structures are impediments to obtaining technology.
Other impediments include lack of capacity and the skills to
select, acquire, adapt and assimilate technologies,
financial constraints and lack of awareness of, as well as
relevant information on, available technologies. Few SMEs
have the networking and monitoring capabilities that would
enable them to access and evaluate technological
information.
SMEs and Global Competitiveness
The main reasons for the growing importance of international
competitiveness are technological. The rapid pace of
innovation – and the resulting promise of productivity
increase – makes it more costly to insulate economies from
international trade and investment. Since new technologies
benefit all activities, traded and non-traded, rapid access
to such technologies in the form of new products, equipment
and knowledge becomes vital for national welfare. Insulation
from global markets and technologies is no longer a viable
option for any developing country.
In reality the globalization of economic activity has a dual
impact on SMEs. For some it provides new opportunities for
expansion and growth by taking advantage of international
market possibilities. These are able to adapt and become
internationally competitive. For the majority, however,
growing economic globalization is increasing the competition
with foreign enterprises and it is a process that brings
competitive challenges and threats. For these SMEs,
globalization brings risks; as they are unlikely to survive
in their present form without improving quality, cost
competitiveness and management practices. SMEs are deeply
affected by the globalization of the markets, which is
forcing all firms to act and think more globally. The world
economy, the liberalization, the increasing globalization,
e-commerce, and other such changes are gradually shifting
the behavioural pattern of the SMEs.
An important strategy that the SMEs can use to improve their
competitiveness in global markets involves the application
and adoption of new technologies that effectively serve to
reduce costs. A number of significant new technologies,
which include the Internet, help, mitigate economies of
scale and the gains traditionally associated with large-
scale production. New web-based information technologies are
enabling SMEs to attain global marketing capabilities at
very low costs. SMEs are also using electronic commerce and
access to products like financial and accounting management
software systems that enhance organizational and management
capabilities, while at the same time reduce the high costs
associated with managing SMEs.
Technological capabilities vary enormously across the
developing countries, but, within a given country, SMEs are
often at a technological disadvantage. Frequently, they
cannot afford to invest in their own research and R&D or to
hire research staff. Collaboration with SMEs in countries
which are more advanced technologically can be a valuable
means of keeping abreast of technological and market trends,
and also of acquiring advice on implementing new
technologies, such as the Internet, and new managerial
practices in their operations.
For growth-oriented SMEs, export is an important strategic
option to achieve continued business growth. Export does not
only facilitate sales growth, it offers a range of other
advantages:
Expansion of customer base
Reduction of dependence on few major customers
Opportunity to even out regional business cycle-related
demand fluctuations
Additional growth opportunities for niche products, for
which the local market is limited.
Establishment of a network of contacts and partners, gain
of experiences – these can be used to improve offers to
traditional local customers.
Where SMEs cannot individually establish competitive
advantage, they can realize scale advantages by cooperating
with other small enterprises and subcontract from larger
enterprises. Enterprises can jointly undertake functions
where scale economies arise: for instance, training workers,
designing new products, conducting quality control or
research activity. Saxenian (1990) has argued that it is the
culture of interdependence and exchange among individuals in
Silicon Valley that has contributed to its superior
innovative performance10. However, finding appropriate
foreign strategic liaisons/partners, who know the domestic
environment, legislative and non-legislative barrier,
language, and the customer requirement, is also crucial.
Management is science and art. The first can be acquired;
the second one can be developed through commitment and by
“learning by doing”. For many enterprises, then, venturing
into global markets implies a change in management strategy.
There is a lot of evidence that successful
internationalizing SMEs have a particular management style.
Generally they have a well-structured management, which
concentrates on core activities, often buying-in not only
physical inputs, but also business services.
Finally, every SME has to understand that international
activities do mean more than just finding new customers or
suppliers in other countries. In addition to the key-factors
of success, it is believed that national SME authorities
should initiate measures to support the development of the
SME sector and promote internationalization of SMEs. The
internationalization of a business involves a process of
profound change. This change requires taking risks, opening
up the firm’s culture and a great capacity to learn. None of
this happens spontaneously but requires planning and clear
leadership. Hence, the planning of these internal changes
should be part of the planning for international activities.
References
1. Mc Grew and Lewis, 1992, Globalization and the Nation States, (p
23)
2. Dunning, J.H, 1994, Globalization: The Challenge for National
Economic Regimes, Dublin: The Economic and Social Research
Council.
3. Naisbitt, J. 1994, Global Paradox, New York: William Morrow.
4. Dunning, J.H, 1994, Globalization, Economic Restructuring and
Development, Geneva: UNCTAD.
5. Hibbert Edgar, The Globalization Of Markets –How Can SMEs
Compete?
6. Bhardwaj Anil, Secretary General of Federation of Indian
Micro and Small & Medium Enterprises (FISME), New Delhi:
Globalization, World Trading System and Indian SMEs.
7. Dr Antal Szabo: SMEs in the Third Millennium,
International Conference on “Legal Aspects of SME
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available under www.ifm-bonn.de/ergebnis/sme.zip. Kets de
Vries, M.F.R. 1993. The dynamics of family controlled
firms: The good and the bad news. Organizational
Dynamics. 21(3) S. 59 ff.
10. Saxenian, A., 1990, “Regional Networks and the
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