Why Even Small Businesses Should Think Globally

[This is the first in a series of articles on globalization.]

For the past several centuries, companies wishing to do business internationally had to face two major problems – geographical and temporal space. However, with the emergence of virtually instantaneous communication methods, including telephones, computers, and video conferences, and the ability to be in almost any other part of the world within 24 hours, distance and time are no longer major concerns for operating on a global playing field. In fact, today, all businesses, from start-up firms to large mature companies, must operate and compete in a rapidly changing environment. Competitive opportunities and threats arise from a number of disparate factors: regulatory, economic, social, cultural, political and technological. As circumstances change, all firms must adapt or lose their competitive advantage to other firms. The last thirty years have been marked by the emergence of the international marketplace, making even the smallest firm a potential multinational business enterprise searching abroad for supplies, technology, low-cost manufacturing and, most importantly, potential customers for its goods and services.

Emerging international opportunities and threats – Product distribution

Opportunities have expanded rapidly in foreign markets; however, each new market has its own unique requirements with respect to product characteristics and distribution. As a result, domestic firms must develop the capability to differentiate existing products to meet the needs of foreign markets and must understand the distribution channels in those markets. In addition, improvements in communications have led to broad dissemination of advertising information, thereby influencing consumer tastes and preferences in foreign markets.

Emerging international opportunities and threats – Production and manufacturing

The factors of production and manufacturing have undergone dramatic changes. The availability of low-cost labor in foreign markets, improvements in transport and communications which permit rapid delivery of goods from point of manufacture to point of sale, and the rapid transfer of production technologies have driven down prices, altered perceptions of quality and service and allowed new competitors to gain rapid entry into product markets.

Emerging international opportunities and threats – Trade barriers and regional trading systems

The existence or absence of non-tariff trade barriers, as well as the emergence of regional trading systems in large markets such as the continuously expanding European Union, have had a significant effect on the distribution function. This trend is expected to continue in large untapped markets in Asia, particularly in the Greater China area that includes Hong Kong, the Peoples Republic of China and Taiwan. The U.S., through bilateral negotiations and activities within multilateral trade organizations, has pushed vigorously for reduction of non-tariff trade barriers in order to allow U.S. firms to access new foreign markets.

Emerging international opportunities and threats – Foreign competition

In the United States, foreign competition has affected consumer tastes and materially impacted opportunities for growth and expansion. Moreover, many foreign competitors have achieved economies of scale which provide substantial advantages with respect to the cost of production and the ultimate pricing structure. In many U.S. industries, foreign firms have become strong and effective domestic competitors, as they establish and maintain manufacturing and distribution facilities in major regional markets throughout the U.S.

Emerging international opportunities and threats – Emerging capital and credit markets

Foreign competitors have utilized emerging capital and credit markets to obtain the funds necessary to expand product development, manufacturing and distribution facilities, as well as for the acquisition of technology and related skills from firms in the U.S. In fact, U.S. capital providers have begun to expand the breadth of their investment and credit activities by providing funding directly to companies located outside of the U.S. For example, U.S. venture capitalists are making investments in technology-based companies in Asia and in the European Union and have established local offices in those areas to provide consulting services, monitor their investments and scan innovative activities in other parts of the world.

Emerging international opportunities and threats – Regulatory and administrative

guidance

The effect of government regulation and administrative guidance has become an important element of competition throughout the world. Foreign investment laws, technology transfer regulations, intellectual property laws and export controls clearly impact the decision to enter new markets; and governmental attitudes toward joint development efforts and other aspects of trade regulation and competition are perceived as creating a number of significant advantages for foreign firms.

Reasons for foreign business activities

Companies, both large and small, consider going global for a variety of difference reasons. Some of the more tangible benefits include opportunities to reduce costs and risks, secure additional access to necessary supplies, improve customer service and relations, and gain access to new markets for the companies’ goods and services. Companies may also look at global operations as a means of learning about new ways to improve operations through the company and to attract talented managers, engineers, and scientists who can make a contribution to the entire organization. In future articles, we will consider these in more detail.