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Effects on Businesses

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How Does Globalization Affect an Organization's Business Approach?

The world's economy is increasingly integrated, in which - to cite a famous example - a butterfly's wings in Brazil can affect a tornado in Kansas. We are now, more than ever before, "a piece of the continent, a part of the main," and what happens anywhere in the world eventually affects us. If you own a small U.S. business, this requires that your approach to business include an awareness of global trade, an understanding of how it affects your business and strategies for your business that include global markets.

What Is Globalization?

Globalization is the increasing internationalization of national economies. The automobile industry serves as a clear, well-understood example. At one time, imports of foreign cars into the U.S. were relatively rare and were regarded as exotic. In the 21st century, many well-known brands - Fiat-Chrysler, for instance - have management, manufacturing and sales divisions in several countries.

Some brands with American identities manufacture cars in Mexico and China; brands with Japanese identities build some models entirely in the U.S. Today, nearly every car on the road has components that originated in more than one country.

The inevitable result of this trend toward globalization is the increasing interdependence of national economies. For example, in the spring of 2018, the Trump administration increased tariffs on approximately $50 billion of Chinese goods. This precipitated similar tariff increases by the Chinese government on American goods. As a result, stock markets worldwide fell sharply.

The Significance of Globalization for Small Business

As indicated by the stock market's response to a feared trade-war between the U.S. and China, nearly every business is affected by global events - even if the business is located entirely in the U.S. When the Chinese responded to the Trump administration's tariff increases, they targeted businesses in the so-called "Red States" - the same states whose voters favored Trump in the 2016 election.

If you have a pig farm in North Carolina, the threatened Chinese 25-percent tariff on pork imports directly hurts your business. But, as your exports decrease - bringing down profits with it - you, as well as other farmers, will be less able to afford new equipment. This affects American farm machinery manufacturers, such as Georgia farm equipment manufacturer AGCO, and all of its suppliers. These suppliers include the same U.S. steel manufacturers the Trump administration's tariffs were designed to protect.

This tariff also affects Italian farm equipment manufacturer CNH Global, which sells into the American market. Not to belabor the point, but this serially affects all of CNH Global's suppliers worldwide and all the companies that sell services and goods to those suppliers. A single large trade event - in this instance the threatened trade-war between the U.S. and China - is immediately felt all over the globe. The butterfly can be felt globally.

How Can Small Business Respond to the Impact of Globalization?

If one were to list all the different ways a small business should respond to globalization, that would be a very long list. Here are some of the more important issues to keep in mind:

Every business is political. This means that no matter which business you're in, political events anywhere in the world will affect your business

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positively, negatively, or, often in complex ways that are both negative and positive. Maintaining an awareness of these larger socio-political events is prudent and may help you determine how to vote in your own interests; when to support political initiatives that are favorable to your business; and when to oppose initiatives that are not favorable to your business.
Every business is either an international business now or is potentially an international business. The incredible expansion of internet-related business, for example, means that a crafts person in Connecticut potentially has customers all over the world. Thinking of ways to connect to those customers will help your business grow. Market diversification will continue and will almost certainly increase. This makes thinking about your own business from a global perspective increasingly necessary for success and survival. You are not alone. An amazing 97 percent of American exporters are companies with 500 or fewer employees. Small business in America is an export-oriented business. Ask yourself how you can remain competitive and participate in global trade; find other globally-aware small business-owners and team with them to expand your export business. Discussing these issues with owners of other small-businesses can lead to new solutions. Isolation isn't possible. As former President Obama noted, globalization can evoke concerns and fears, but it is important to respond by finding ways "in which we are expanding and broadening the benefits of that interconnection to more and more people." The alternative is that we become increasingly irrelevant as the world continues to globalize.

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How Does Globalization Affect an Organization's Business Approach?

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The world's economy is increasingly integrated. What happens anywhere in the world will eventually affect your business. This requires your approach to business to include an awareness and understanding of global trade, and the creation of strategies which include global markets.

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Effects on International scale

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Globalization