Different scholars have explained the concept of globalization and its effect from different perspectives. Globalization is multi-faceted with a dimension of economic, political-legal, social-cultural, and environmental (Gichira, 2007). Rapid globalization is one of the most significant aspects of the new millennium, particularly since the fast development of information technology (IT) in the 1980s and 1990s (Brown, 1999). However, integration of the economic resources across the globe using trade, financial flows, the advancement of technology, communication of information, movement of people, goods, and services are part of the major challenging factors in some of the developing states. Business organizations need a comprehensive, logical, strategic network and the ability to maximize profit on a global basis.
As globalization continues to increase rapidly in the current world, there is a need for academicians, specialists, and professionals to put more effort into identifying the effect of globalization on managerial strategies within and outside the Small and Medium Enterprises (SME’s) structure. Thus, providing an optimum solution will help the respective managers to maintain their organizations as relevant and competitive. Strategic management is a technique that can be used to create a favorable future and help SMEs to prosper through predicting the most desirable upcoming, involvement of their firms.
An essential aspect of controlling the effect of globalization on SMEs is the effective and efficient implementation of the developed strategies by understanding the people communicating and working together (Brown & Weiner, 1985).
The objective of this article is to ascertain the implication of globalization on SMEs and also to ascertain the process by which the implication will be improved. Thus it has to do with an imperative throughout the SMEs, to support the resources for the firms to fulfill its mission.
Concept of Globalization
Globalization is unavoidable to both high and low-profile organizations across the world. However, numerous initiatives and efforts have been made to adapt to it to take the opportunities created from it, to develop organizations, coupled with changes in recent years. Globalization has created numerous opportunities for sharing knowledge, technology, social values, and behavioral norms and promoting development at different levels including individuals, organizations, communities, and societies across different countries and cultures (Ong’ayi, 2013).
Globalization has brought with it effects that have made companies devise means of staying competitive not only in the global market but also in the local market. Companies have been forced to diversify their product portfolio to cope with competition, maintain market share, enter into new markets and seal off any unexplored market segments that foreign competitors may come to exploit.
Effects of Globalization on SMEs ’
There is an increase in international concerns about the negative impacts of globalization on public and private organizations. Various social movements have been initiated against the threats of globalization, particularly in developing countries (Cheng, 2000). Globalization requires companies not only to be multinational and multilingual but also to be multicultural corporations. It is the same belief on the globalization effect on the SMEs. As such, it instigated many SMEs must accept, adapt and blend multicultural aspects in their business processes. The delayering of cultural strata must be a prerequisite before SMEs sign any memorandum of understanding with a host country. There is an emerging global culture that is changing social expectations and understanding. This culture provides a global reality where co-creation and innovation in knowledge-sharing and relationships are flourishing.
Survival and success of an SME occur when the organization creates and maintains a match between its strategy and the environment and also between its internal capability and its strategy. Responses to globalization require SMEs to change their strategy to match the environment and also to redesign their internal capability to match this strategy. If an SME strategy is not matched to its environment, then a strategy gap arises. If it means that internal capabilities are not matched to its strategy, then a capability gap arises (Ong’ayi, 2013).
Porter (1985) affirms that it is essential that organizations be able to shift strategy with changes in the environment and match their capabilities to the selected strategy to survive, succeed and remain relevant. Firms in dynamic industries respond to environmental changes and competitive forces in different ways. Some improve current products, diversify and divest, while others employ techniques that ensure operational effectiveness. To achieve a competitive advantage, the strategy needs to focus on unique activities.
Operational effectiveness is necessary but not sufficient for achieving sustainable competitive advantage. Changes in environmental conditions shape a firm’s opportunities and challenges are paramount to the SMEs. A new environment necessitates the formulation of a new strategy best suited to cope with change. Accordingly, in most cases, noisy environments are characterized by unfamiliar rapid, and unpredictable events.
Managing the effect of globalization
Globalization affected the strategic system of SMEs to a great extent, it is for the lack of the SME’s commitments towards accepting the realities of the current global business trend. Most of these issues happened with SMEs in developing countries like Nigeria. As such, there is a need to engage an effective marketing team to meet the need of their customers who were expanding to other parts of their covering locations other than their home localities. However, this will necessitate the need to develop strategies that would see the SMEs expand to different locations. It is concluded that globalization affected SME’s strategic system as it determined the expansion strategies that have to be adopted by the firms is expanding its services to other business catchment areas.
A well-managed SME must deal effectively with the social, political, and legal dynamics of its environment, as well as the more traditional product and market-focused concerning their economic and technological environment needs. Management must recognize that business is a component of a broader, continually changing social system. Continued success must be “dynamic” to achieve its enduring goals. That is, it must provide continuous advantage despite changes in the environment, regulatory shifts, technological breakthroughs, or competitive markets.
Anticipating possible actions by rivals is critical to delivering sustained success. To maintain sustainable success in global competition, an organization must master the skills of priority setting and project management to assure that they effectively define and deploy the right initiatives that result in sustaining success globally. To create advantageously, this means staying ahead of rivals, and this requires organizations not only to make continuous improvements but also use “breakthrough” opportunities to distinguish themselves in their marketplace as a differentiated provider of products and services.
This type of management requires managerial competence in three areas: business vulnerability analysis, action planning administration, and operational excellence. The best implementations of policy deployment thus will fully engage the strategy-setting processes as well as the organization’s change management process.
Brown, A., & Weiner, E. (1985). Super managing: How to harness change for personal and Organizational success. New York: Mentor.
Brown, L. R., Slavin, C., & Postel, S. (1991). Saving the planet: How to shape an environmentally Global economy. New York: W. W. Norton and Co.
Cheng, Y.C. (2000), A CMI-striplization paradigm for reforming education in the new Millennium, International Journal of Educational Management, 14 (4).
Ong’ayi, m. N. (2013). The effect of globalisation on strategic management at Ernst & young (ey), Kenya (doctoral dissertation, school of business, University of Nairobi).
Porter, M. E. (1985), Competitive Advantage: Creating and Sustaining Superior Performance, New York: Free Press.
Dr. Umar Aliyu Mustapha is currently working as a Lecturer I in the Department of Accounting and Finance in Skyline University Nigeria. He has acquired PhD. in Accounting from University Sultan Zainul Abibin (UniSZA) Malaysia.