By Dagmar Recklies
Impact of Globalization on Small and Medium-Sized Enterprises (SMEs)
Today, globalization is a major driver that has impact on nearly every business. The internationalization of markets for sales and purchasing at least indirectly influences every business. Examples are the entry of new competitors into formerly protected domestic markets of changes in customers’ behaviors or preferences.
Globalization has that much impact that Larry Downes mentioned it as one of three new drivers in business life in his much-discussed article Beyond Porter. Downes says that technological progress in logistics and distribution enables nearly every business to buy, sell and cooperate on a global scale. Similarly, customers have the chance to compare prices globally in order to find the best offer.
In the result, even smaller and locally orientated businesses have to see themselves in a global context, even if they do not intend to launch their own import or export activities. Doubtless, a major strength for many SMEs is their close customer contact and their ability to maintain close customer relationships. Nevertheless, in the light of today’s business environment all SMEs have to ask themselves some questions, even if they want to go on with their local strategy and if business outside their traditional region has no strategic logic:
· Could a cooperation with international partners / suppliers enable us to provide value added to our customers, that would tie them even closer to us?
· Would such cooperation improve our profitability?
· Is there a chance that an international competitor enters our local market, who might be able to offer our customers the same personalized service as we do by employing new information technology and sophisticated logistics solutions?
· How do we think about the risk that our customers might look out for new suppliers by using the Internet?
· Changes in product preferences
· Changes in expectations on price level and supporting services
· Reduction of fear to cooperate with a partner that is not locally available
If the organization expects such a situation, it should quickly start to develop a suitable strategy that offers a solution to these new environmental conditions.
Export as a Strategic Option for SMEs
Especially for growth-orientated SMEs, export will be 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.
Many typical characteristics of SMEs are determined by factors like size of organization or independent ownership (family of small group of people). These characteristics may lead to disadvantages and advantages in the process of globalization :
These special SME-characteristics determine some preconditions for small and medium-sized enterprises to export successfully:
The decision to globalize and to enter export markets needs the strong vision, commitment and determined leadership of the owners and managers. These people need to be convinced that this is a strategically important step for the businesses long-term development. Only then, they will be able to overcome the numerous risks and problems, which accompany internationalization of a business. Without real commitment of the leadership team, the organization will probably cancel their international activities as soon as the first problems arise – long before the benefits will show up.
Moreover, going global requires a certain degree of international experience and knowledge within the organization. Without that, the business would too much depend on third people’s advice. This is often expensive (external consultants) and not always as reliable as own experience.
Own know-how improves confidence into the chosen strategy. Ideally, the owners(s) or the next generation should have an international training. The future heads of the firm must have international exposure and acquire experience in overseas’ markets and cultures. If the organization does not have this internal knowledge, it is advisable to hire an appropriately qualified person to take on a management position. This leads to a valuable side-effect: the leader from outside the organization will bring a new way of thinking and acting into the business, which is helpful to implement the necessary changes in culture, ways of doing things, processes, and structures. To make an SME or any business a global business requires an openness to change among the owners and the management team. Without that, the powerful dominance of the owner-manager will make the efforts of all committed external experts fail.
Finally, every SME has to understand that international activities do mean more than just finding new customers or suppliers in other countries. 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.
© Dagmar Recklies, October 2001
Some links for your own research:
Parts of this article are adapted from:
Dagmar Recklies SMEs – Size as a chance or a handicap? And
Diego Torres The internationalisation of family businesses. Differential aspects. In The International SME. Developed by Cambs TEC & Business Link Ltd, Sinnea International, Escola Superior d’Administració I Direcció d’Empreses, Leipzig Chanber of Industry and Commerce, Aglia Polytechnic University Managed Learning Ltd.
 Larry Downes: Beyond Porter. In Context Magazine. Aalilable at http://www.contextmag.com/setFrameRedirect.asp?src=/archives/199712/technosynthesis.asp
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Status: 18. Januar 2008