How Globalization Affects a Small Business
Globalization is the process of worldwide efforts towards integrating world views, products, ideas, and other economic activity on an international scale. Developments in transportation, communications, and trade are major factors in globalization. Through this process, different aspects of a business can be spread throughout the world by outsourcing jobs and operations to other countries. The development of globalization has encouraged the reduction of tariffs, quotas, and trade regulation, allowing for a more free-trade market where money, jobs, information, and goods move across borders easily. Globalization affects and is affected by businesses and the environment. Management needs to be aware of global issues and how they will affect business overall. An Italian restaurant in Philadelphia is an example of a business that could be impacted by certain aspects of Globalization. In a culturally rich area with the ability to import goods, operations can easily be affected by economic, political, and social changes.
An example of a global issue that could impact business is tariffs. Tariffs are taxes on imports and exports. Having a current president who is not very big on free trade, tariffs are quite relevant in today’s business world. A business like an Italian restaurant relies heavily on free trade to ensure lower tariffs. For a small, private restaurant owner, it would be ideal to keep the establishment as authentic as possible for customers, which may require importing certain goods straight from Italy. If Italy were to raise tariffs, that could cause a decrease in the business’s profit margin by increasing costs of imported goods. This could result in the need to get rid of employees, which would ultimately cause a decline in production.
Exchange rates are an example of another global issue that would affect an Italian restaurant. Exchange rates let businesses determine how much of one currency can be exchanged for another. Italy’s form of currency is the euro. If the value of the euro were depreciated, it would make Italian exports cheaper, making it easier for an Italian restaurant to purchase authentic ingredients. By purchasing authentic ingredients, the restaurant would become more marketable and attract more customers.
The price of oil is another relevant factor of globalization that would negatively impact an Italian restaurant in Philadelphia. The cost of transportation fluctuates daily because of changing markets, economies, and crude oil costs. During the past few decades, oil prices have fluctuated substantially. When oil prices are on a decline, it encourages the importation of goods from foreign countries like Italy. Subsequently, if oil prices rise, this would make importing from Italy more expensive, which could cause management to seek local distributors. Overall, costs go up. Also, no longer offering authentic Italian ingredients could harm the reputation of the restaurant. Aside from importing, the increase in oil prices would be a disincentive to travel to the restaurant in Philadelphia for those who do not live in the area.
Immigration Is vital to the restaurant industry because many workers in food service are immigrants. The business community is in favor of immigration reform for obvious reasons. Immigrants work for lower wages which is attractive to restaurant managers. They do not require benefits for the most part and are generally hard workers. Our current political climate is not supportive of immigration. If our country were to enact harsher immigration laws, the restaurant could be forced to hire domestic workers at a higher cost.
Many advocates of globalization argue that it makes markets more competitive which causes companies to be more sensitive of consumers. Critics may argue that globalization encourages organizations to make some unethical decisions like exploiting people to labor pools that are not protected by fair pay and fair labor standards. Nonetheless, globalization has a significant effect on businesses. In the case of a very small, niche business, globalization may be more harmful than helpful. Although it aids in gathering items to increase the authenticity of the restaurant, globalization has created many more risk factors for a local firm that does not operate on a global scale. Globalization benefits the free-trade global economy that is supported by many businesses that have an Internet presence and cater to multiple nations; however, it poses a threat to the local food industry in many ways. The fluctuation in immigration influenced by the political climate, changes in trade regulations, and the ever-changing cost of transporting goods create a risk to operate on such a small scale. With many changes occurring in the United States and in the global economy, businesses must be ready and flexible enough to make changes.