Globalization's effects on UK small and medium businesses

¶ … Globalization on Small and Medium Businesses in UK

Entrepreneurship in the United Kingdom is touted as serving as a primary source of creation of both work positions and wealth enabling growth economically and technologically and brings about social transformation. In addition, this transformation is enabled through innovation, production and assumption of risk which characterizes entrepreneurship. As this work will show, entrepreneurship has during a time of globalization of the world business environment been a driver in the quality of life for those who are employed not only in the United Kingdom but worldwide as well.

There are many companies in the United Kingdom that are closing their doors due to the failure of these companies to compete effectively in the global business environment. It is reported that one of the primary features of the global economy today is "the growing role of young entrepreneurial new ventures." (Zahra and George, nd) Research attention has focused on examining the "motivations for, the pattern of and the pace of internationalization by new ventures." (Zahra and George, nd)

It has been suggested by some researchers that these new ventures are quite often involved in the global economy almost immediately following the creation of these new firms however, recent research has sought to examine the levels of entrepreneurship in more established firms with the purpose of examining the primary patterns of innovativeness as it is linked to internationalization success of the firms.

Positive effects of globalization includes that globalization serves to broaden the access of goods and services thereby enabling consumers and companies in their ability to acquire a wider range of goods and services such as in the case in the sitting of Barclays Bank call centre in India and McDonald Restaurants being located in the United Kingdom. Globalization further serves to provide better access to finance externally and to enhance the worldwide financial markets. (McCubbrey, 2010)

In addition, globalization has brought about an increase in international travel and tourism which has served to bring about the creation of additional opportunities for small and medium sized businesses. Globalization has enabled higher trade exposure and foreign direct investment inflows which have resulted in new business opportunities being created and for the increase in small and medium sized business activity. (Colantone and Sleuwaegen, 2007)

Globalization has further served to intensify competition in import items and has driven better access to cheaper intermediate goods and wider final product markets due to trade openness increase. Globalization associated immigration has changed the labour force both in terms of its and composition and the expansion in foreign communities has resulted in the creation of a demand for more and new services including ethnic-specific products all of which has served to enhance the creation of new businesses.

In addition, there are greater opportunities created by globalization for firms in the less industrialized countries which enables these countries to tap into the larger markets worldwide. Furthermore, globalization has served to enable businesses in less industrialized companies to become involved in international production networks and supply chains which are the primary venues of trade. (McCubbrey, 2010, paraphrased)

There are also negative effects of globalization on small and medium sized business in the United Kingdom including that income inequalities have resulted from the growth of international trade and the global commerce is becoming more and more dominated by transnational corporations which seek profit-maximization and this is combined with a lack of regard for the development needs of individual countries and their local populations. (Colantone and Sleuwaegen, 2007)

Also noted in this study as a negative effect of globalization are the protectionist policies in countries that are industrialized which serve to prevent many producers in the Third World countries from accessing export markets. (Colantone and Sleuwaegen, 2007, paraphrased) Finally, another negative effect of globalization is the volume and volatility of capital flows which serve to increase the risks of banking and currency crises and this is particularly true for countries characterized by weak financial institutions. (Colantone and Sleuwaegen, 2007, paraphrased)

Most countries have acknowledged the fact that their economy is based on small and medium enterprises. In other words, the success of these countries' economies depends on the success of the SMEs' activity. Therefore, it is necessary that the government develops strategies in order to sustain these companies and help them expand their business on international level. This research study intends to identify and to evaluate the necessity of the government's implication in SMEs global activity.

OBJECTIVES of the RESEARCH

The objective of the research contained in this study is to examine entrepreneurship in small and medium enterprises in the United Kingdom and to assess the levels of entrepreneurship in these firms and the extent to which globalization has impacts the businesses at focus in this study.

RESEARCH QUESTIONS

Research questions addressed in this study includes the questions as follows:

(1) Has globalization resulted in more positive impacts than negative impacts on small and medium sized businesses in the United Kingdom?

(2) Is it possible for small and medium sized United Kingdom businesses to ease the impact of globalization through proper planning and strategy?

(3) Has globalization resulted in the need for more research in the area of factors that drive globalization and factors that support and enhance business growth and continuity in the United Kingdom?

SIGNIFICANCE of the STUDY

The significance of this study is the knowledge and information that will be added to the already existing knowledge base in this area of research and study as well as the information that will be made available to researchers on globalization and entrepreneurship in the United Kingdom.

ORGANISATION of the STUDY

Chapter One of this study has introduced the study and has set out the methodology, purpose and significance of the study as well as stating the questions and hypotheses that will be examined during the course of the study. Chapter two contains a review of literature and chapter three contains the study methodology description and explanation. Chapter Four will contain the results of the questionnaire/survey administered in this study while Chapter Five will contain the findings of the study. Finally, Chapter six of this study will contain the study conclusions and recommendations.

CHAPTER TWO

LITERATURE REVIEW

INTRODUCTION

The process of globalization has significant effects on national economies, private companies, and individuals. Some of these effects prefer to improvements of the situation in certain countries and of certain companies, while other effects refer to difficulties that these stakeholders must address. Given the fact that customers represent the central focus of companies' activity, the process of globalization directly affects them. The manner in which companies respond to the effects of globalization also depends on the strategies developed and implemented by countries' governments. Globalization influences the national workforce situation, which determines authorities to take action in this direction.

The following pages intend to review some of the literature that refers to the influence of globalization on the private environment, on small and medium companies, and on consumers. The review will provide a presentation of works that evaluate the advantages of globalization. Such advantages include reduced prices of products and services as a result of increased competition, which favors customers, economic development of certain countries, and business expansion of companies. Some of the disadvantages of globalization include the increased competition in certain fields that some companies cannot successfully address, the increase of the unemployment rate as a result of the outsourcing process, and the lack of sustainability in certain regions.

The work of Zahra, et al. (2008) entitled "Globalization of Social Entrepreneurship Opportunities" states that entrepreneurship "by new and established companies is a major source of wealth and job creation, economic and technological growth and social transformation. This transformation is made possible by the powerful forces entrepreneurship unleashes, where ordinary people conceive innovative ideas, organize production, assume risk, and engage customers to accumulate wealth or address pressing social causes, often across national borders." In a news report dated August 29, 2006, it was reported that globalization "…has made a real difference to the quality of life of working people in the UK and across the world…" (HRM Guide, 2006) However, it is reported that just as there are winners there are also losers because "too many British workers are losing their jobs when companies move abroad or fail to compete." (HRM Guide, 2006)

It is argued in the work of Audretsch and Sanders (2008) entitled "Globalization and the Rise of the Entrepreneurial Economy" that recent trends in the global economy have resulted in a "shift in developed countries' comparative advantage from mature industrial to early stage entrepreneurial production." (Audretsch and Sanders, 2008) it is held that since entrepreneurs "…also serve as the agents that move varieties between life cycle stages, their value added increases due to globalization and technical change. By contrast, the factors of production employed in the mature stage of the life cycle, e.g. low skilled northern labour, become less valuable. Thus, the model predicts the emergence of an entrepreneurial economy in the North as the South opens up to trade and industries." (Audretsch and Sanders, 2008) Additionally reported in the work of Audretsch and Sanders is the following:

"The polarization of labour demand and deindustrialization trend coincided with the reemergence of small and medium sized firms as the main generators of growth, employment and value added. When Birch (1981) first observed this reversal in a long trend of increasing scale and concentration in the developed economies, it was not taken seriously right away as the evidence was mixed and the initial methodology could be criticized for several reasons. But the phenomenon turned out to be a lasting one when Acs and Audretsch (1990, 1993) surveyed the evidence for the 1980s. More recent surveys (e.g. Parker (2004), Versloot and van Praag (2007)) clearly establish the importance of entrepreneurship and small firm activity in the modern innovation driven economy." (Audretsch and Sanders, 2008, p.8)

The work of Passaris (2006) entitled "The Business of Globalization and the Globalization of Business" published in the Journal of Comparative International Management reports that globalization is not a new concept. It has evolved and matured over the centuries to reflect the priorities and ambitions of different generations." According to Passaris (2006), it is assumed that off-shoring makes a requirement of additional entrepreneurial resources being committed. The process of globalization in Britain is stated to have been compounded further by the Single European Market initiative at the European Union level." This has resulted in a complete restructuring of the British industry as organizations "of all sizes and economic activity streamlined, refocused and sought to form alliances or joint ventures with firms operating in international markets. The globalization process in Britain is increasingly recognized as a major driving force behind the reshaping of the socioeconomic and political structure of the country." (Passaris, 2006)

DEFINITIONS of GLOBALIZATION

There are many definitions of globalization which span across different fields of studies e.g. sociology, economics, cultural, political, and technological. Marshall Mcluhan (1999) coined the term 'global village' meaning a situation in which information traveling at electronic speeds would replace language with instant non-verbal communication, creating an all-at-oneness. According to Anthony Godden (1990), "the core of globalization is the experience of 'distanciation' as social relations gets stretched across time and space and thereby take on an increasingly reflexive quality." Kobrin (1998) define globalization as an increasing scale of economic activity; inter-firm alliances and information flows. Larry J. Ray (2007) defined Globalization as the