Globlization Effects on Sme's

Introduction

The impact of globalization on small and medium enterprises (SMEs) has received a lot of attention in international markets in the past few years. Today, globalization is a major driver that has impact on nearly every business. One of the reasons for the international focus on SMEs is that these firms make significant contributions to the economy of both developed and under-developing countries. SMEs contribute over 55 percent of GDP and over 65 percent of total employment in high-income countries (UNCTAD, 2004). In Middle and East Asia for example SMEs are major players in their countries economy; accounting for a higher percent than what it represents in the developing countries.

Globalization has that much impact on business forces which have added more drivers to Porter’s five Forces. One of these new drivers in business life was discussed in an article by Larry Downes in “Beyond Porter” 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”. Many SMEs are now looking to вЂ?go global’. The markets are more accessible than ever before. However, most SMEs are finding it difficult to master the art of market entry, resulting in heavy losses.

Globalization has increased competitive pressures on firms. Together with rapid technological change it has altered the environment in which SMEs operate. The bottom line is that, in an open and liberalized world, increasing SMEs competitiveness has become a major challenge.

Globalization has also expanded competition both geographically and to new areas. Competition between companies was mainly on products and services, at least to the extent that markets were protected from foreign competition. Today international вЂ"and more local firmsвЂ" compete internationally with minimal governmental intervention. SMEs must be able to understand and manage this new multi-layer challenge, they have to implement corporate restructuring and corporate governance in the right balance to inshore the business prosperity and accountability

Significance of SMEs

The importance of SMEs in countries economic