Economic challenges, according to The United Nations
Economic Integration among nations
Globalization has brought economic, social, and political integrations among countries; integration refers to the increase in international interdependence among different economies (Linda, 2001). This paper discusses advantages and disadvantages of integration; it will also analyze how governments should assist small and medium enterprises to compete with multinationals.
Advantages and disadvantages of integration
Through integration, nations and companies get wider access to the world economy and their dependence on local resources is reduced; governments promote economic integration between economies of different countries with the aim of establishing a global market.
When operating across board the market base of the trading companies is improved given thus enjoyment of scale of economies is facilitated. With integration consumers get the chance of wider selection of goods and services, they can easily acquire commodities at lower prices. The net effect is improved living conditions among the citizens of a country (Moore, 2009).
Integration of nations creates job opportunities among populations of different countries; it leads to trade liberation and market expansion. Countries with a large number of investments derived from integration have greater diffusion of technology that creates job opportunities to the citizens of the nation. When jobs are created, there is reduction of poverty rates and living condition among citizens of a nation improves (Martin, 2005).
Integration has brought about some challenges, according to The United Nations conference on trade and development (UNCTAD) 1997, integration has brought economic, political, and social disparities among nation. The conditions have led to tension among countries and inequality is on the rise; Inequalities are threats to socioeconomic and can lead to backward economic movements.
Integration among nations has created regional disparities among countries; poverty rates are still high in sub-Sahara Africa although there has been a fall in its rates in South and East Asia. The countries continue to suffer as they have been reduced to net consumers by integration. Despite globalization been taken as one of the major solution to world poverty, it has created some problems that have actually increased the rate of poverty (Linda, 2001).
What could governments do to help their small companies compete after the formation of such blocs?
Integration among countries have brought challenge to small and medium scale players as they are not able to compete effectively with multinationals operating in the same industry. Governments in such countries have the role of enacting policies that can facilitate competitiveness of small scale companies with multinationals (IMF staff, 2008). Such policies include:
Governments should offer SMES incentives that reduce their operational costs; such incentives include tax holidays, investments deductions, and adoption of technology that can enhance competitiveness. When offering incentives, governments should be sensitive not to engage in unethical business practices.
Investment in infrastructures
As an indirect move to encourage efficiency among SMEs, government should embark on aggressive investments in infrastructures. When a country has well developed transport, communication, and technology networks, it is more likely to produce goods at relatively low costs and high efficiencies.
Offering affordable financing options
The main reason why SMEs are not able to compete effectively with multinationals is limited capital; they hardly enjoy economies of scale which is the strongest competitive tool used by multinationals. The cost of attaining capital is one of the main operational costs that SMEs have to pass to consumers; governments should exploit options to offer affordable loan facilities to SMEs as this will make the prices of their commodities competitive (Joseph, 2003).
IMF staff. (2008). Globalization: A Brief Overview. Retrieved from, http://www.imf.org/external/np/exr/ib/2008/053008.html
Joseph, S. (2003). Globalization and Its Discontents. New York: W.W. Norton & Company
Linda, L. (2001). The Globalization Debate: Issues and Challenges. Geneva: International Labor Organization.
Martin, W. (2005). Why Globalization Works. London: Yale University Press.
Moore, M. (2009). Saving Globalization: Why Globalization and Democracy Offer the Best Hope for Progress, Peace and Development. New York: John Wiley and Sons