Globalization: The Impact on Small Business
Globalization: The Impact on Small Business
Globalization affects every economy and business differently and as communication and transportation continues to improve, the market continues to expand. Globalization is defined by George Ritzer as, "an accelerating set of processes involving flows that encompass ever-greater numbers of the world's spaces and that lead to increasing integration and interconnectivity among those spaces." Technology advancement allows buying and selling to occur directly over the internet. The internet also spreads ideas faster through things like social media. People travel more and farther depending on the gas and oil rates therefore are more cultured. Because there are fewer barriers to investment, the world is developing as a chain reaction because money is interdependent financially. Another major factor affecting globalization is free trade. When it is easy to enter a new market and barriers are low, prices are also lower because there is an increase in competition globally and domestically.
First, the owner of any small business is affected tremendously by free trade. Free trade allows companies to trade products and services in the market. Free trade originally gave the United States an advantage over Europe economically. America traded freely between states unlike European countries that thought they were, "protecting" themselves from their neighbors (Blinder). Different countries specialize in certain aspects because of resources giving them a comparative advantage. Although some believe that only large corporations benefit from free trade, truthfully small businesses are also positively impacted.
In other countries because labor is less expensive so are their products. A small business could not afford to pay the labor hours for people to manufacture many items, therefore they import from foreign countries. Free trade allows small businesses to manufacture and sell goods overseas generating higher profits. "According to Howard Shatz, in his testimony before the House Committee on Small Business (September 2003) between manufacturers, wholesalers and other "trade facilitators" fully 94% of exporters in California are small- and medium-size businesses," (Strauss). Therefore, 9 out of 10 exports in the United States are products or services from small businesses.
Another factor of globalization is the currency exchange rates. These rates not only have an impact on what I will be spending on imported food but also the profits for the restaurant. A currency exchange rate is the price of one currency compared to another currency. Italy joined the EMU – the Economic and Monetary Union, which introduced the single currency, the Euro. The European Union includes 26 countries that have free trade, 16 who have common currency. There are no borders people can travel freely between these countries with no passports or exchange rates. There can be problems with a common currency. When one economy is weak, the value of another one is affected.
The rate of our own currency in America is important because consumers spend more or less depending on the market. The value of the dollar increases parallel to the demand. Alan Blinder, a Professor of Economics at Princeton University, wrote, "If we successfully restrict imports, Americans will spend less on foreign goods. With fewer dollars offered for sale on the world's currency markets, the value of the dollar will rise relative to that of other currencies. At that point unprotected industries will start to suffer because a higher dollar makes U.S. goods less competitive in world markets." This could drastically affect all businesses and essentially put them out of business.
An additional issue with globalization is the price of tariffs and quotas. A tariff is the tax imposed by the government on imported goods and services used to restrict trade. If tariffs are high, the cost of goods will go up. The cost of goods going up will affect the customers because the prices will have to be raised. When governments impose high tariffs, countries will tend to reciprocate by raising their own. A quota is a restriction placed in action by the government which limits the amount of certain items or value of goods to be imported or exported. Because this involves international trade, a quota of the number of tomatoes allowed to be imported would have an extreme effect on an authentic Italian restaurant. The price of a tomato would sky rocket based on supply and demand.
Tariffs and quotas hurt businesses substantially. For an example, the 1980's there was a quota on the number of semiconductors allowed to be imported. The quota drastically affected the computer industry negatively because the cost of computer chips became astronomical. Another industry affected by quotas is the American automotive companies. The steel made in the United States is far more expensive giving them a less competitive advantage (Blinder).
All in all, running any type of business in America, globalization impacts the decisions that you make in order to be prosperous. As technology continues to innovate, our culture becomes more knowledgeable of other nations beliefs and values. This essentially alters our nation. As a small business owner, globalization always has an impact. Currency rate controls the ability of consumers to consume and the profit margins. High tariffs and low quotas controlled by the government could essentially put someone out of business.
Alan S. Blinder, "Free Trade." The Concise Encyclopedia of Economics. 2008. Library of Economics and Liberty. 14 November 2013. <http://www.econlib.org/library/Enc/FreeTrade.html>.
Ritzer, George. "Introduction." The Blackwell Companion to Globalization. Ritzer, George (ed). Blackwell Publishing, 2007. Blackwell Reference Online. 14 November 2013 http://www.blackwellreference.com/subscriber/tocnode.html?id=g9781405132749_chunk_g97814051327491
Strauss, Steve. "Globalization Is Good for (small) Business." USATODAY.com. USA TODAY, 17 May 2004. Web. 14 Nov. 2013.
Globalization affects every economy and business differently and as communication and transportation continues to improve, the market continues to expand. Globalization is defined by George Ritzer as, "an accelerating set of processes involving flows that encompass ever-greater numbers of the world's spaces and that lead to increasing integration and interconnectivity among those spaces." Technology advancement allows buying and selling to occur directly over the internet. The internet also spreads ideas faster through things like social media. People travel more and farther depending on the gas and oil rates therefore are more cultured. Because there are fewer barriers to investment, the world is developing as a chain reaction because money is interdependent financially. Another major factor affecting globalization is free trade. When it is easy to enter a new market and barriers are low, prices are also lower because there is an increase in competition globally and domestically.
First, the owner of any small business is affected tremendously by free trade. Free trade allows companies to trade products and services in the market. Free trade originally gave the United States an advantage over Europe economically. America traded freely between states unlike European countries that thought they were, "protecting" themselves from their neighbors (Blinder). Different countries specialize in certain aspects because of resources giving them a comparative advantage. Although some believe that only large corporations benefit from free trade, truthfully small businesses are also positively impacted.
In other countries because labor is less expensive so are their products. A small business could not afford to pay the labor hours for people to manufacture many items, therefore they import from foreign countries. Free trade allows small businesses to manufacture and sell goods overseas generating higher profits. "According to Howard Shatz, in his testimony before the House Committee on Small Business (September 2003) between manufacturers, wholesalers and other "trade facilitators" fully 94% of exporters in California are small- and medium-size businesses," (Strauss). Therefore, 9 out of 10 exports in the United States are products or services from small businesses.
Another factor of globalization is the currency exchange rates. These rates not only have an impact on what I will be spending on imported food but also the profits for the restaurant. A currency exchange rate is the price of one currency compared to another currency. Italy joined the EMU – the Economic and Monetary Union, which introduced the single currency, the Euro. The European Union includes 26 countries that have free trade, 16 who have common currency. There are no borders people can travel freely between these countries with no passports or exchange rates. There can be problems with a common currency. When one economy is weak, the value of another one is affected.
The rate of our own currency in America is important because consumers spend more or less depending on the market. The value of the dollar increases parallel to the demand. Alan Blinder, a Professor of Economics at Princeton University, wrote, "If we successfully restrict imports, Americans will spend less on foreign goods. With fewer dollars offered for sale on the world's currency markets, the value of the dollar will rise relative to that of other currencies. At that point unprotected industries will start to suffer because a higher dollar makes U.S. goods less competitive in world markets." This could drastically affect all businesses and essentially put them out of business.
An additional issue with globalization is the price of tariffs and quotas. A tariff is the tax imposed by the government on imported goods and services used to restrict trade. If tariffs are high, the cost of goods will go up. The cost of goods going up will affect the customers because the prices will have to be raised. When governments impose high tariffs, countries will tend to reciprocate by raising their own. A quota is a restriction placed in action by the government which limits the amount of certain items or value of goods to be imported or exported. Because this involves international trade, a quota of the number of tomatoes allowed to be imported would have an extreme effect on an authentic Italian restaurant. The price of a tomato would sky rocket based on supply and demand.
Tariffs and quotas hurt businesses substantially. For an example, the 1980's there was a quota on the number of semiconductors allowed to be imported. The quota drastically affected the computer industry negatively because the cost of computer chips became astronomical. Another industry affected by quotas is the American automotive companies. The steel made in the United States is far more expensive giving them a less competitive advantage (Blinder).
All in all, running any type of business in America, globalization impacts the decisions that you make in order to be prosperous. As technology continues to innovate, our culture becomes more knowledgeable of other nations beliefs and values. This essentially alters our nation. As a small business owner, globalization always has an impact. Currency rate controls the ability of consumers to consume and the profit margins. High tariffs and low quotas controlled by the government could essentially put someone out of business.
Alan S. Blinder, "Free Trade." The Concise Encyclopedia of Economics. 2008. Library of Economics and Liberty. 14 November 2013. <http://www.econlib.org/library/Enc/FreeTrade.html>.
Ritzer, George. "Introduction." The Blackwell Companion to Globalization. Ritzer, George (ed). Blackwell Publishing, 2007. Blackwell Reference Online. 14 November 2013 http://www.blackwellreference.com/subscriber/tocnode.html?id=g9781405132749_chunk_g97814051327491
Strauss, Steve. "Globalization Is Good for (small) Business." USATODAY.com. USA TODAY, 17 May 2004. Web. 14 Nov. 2013.
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