Global Managerial Economics (Essay Sample)

Name Professor Subject Date Global Managerial Economics The small and medium-sized enterprises (SMEs) form a crucial part of the U.S. economy. The SMEs create the most jobs in the country; they target the ordinary Americans for employment thus making them a very important component of the economy. Without the SMEs, the economy will bleed millions of jobs, adversely affecting the economy. This is the reasoning behind the drive by President Obama to give this sector newly acquired impetus and promote it to create more jobs for Americans and grow the economy. The target of the National Export Initiative (NEI) is to boost the export capacity of the SMEs in the U.S. by supporting them; the administration reasons that this will result in the creation of two million jobs. The intention is good, but the challenge lie in the operationalization of the policy and ensuring it works in the actual market (Audretsch, 100). The international market and the export market is often dominated by the big corporations with many resources to invest; this makes them strong and gives them the ability to compete with the big corporations that are players in the international market. The SMEs form the U.S. lack, the resources, know how, and the experience to compete with the established world trade players form the Europe Union, China, and India. This is where the Export Promotion Cabinet steps in to help the U.S. SMEs succeed in the competitive export market (Audretsch, 101). The cabinet should take action to remove both foreign and domestic barriers that curtail the SMEs players in the country to participate in the export market. Such barriers give the larger corporations the edge in the market and make it difficult for the SMEs to compete on a level playing field. Some of these barriers include (Mauro and Shah, 23): Domestic Barriers SMEs have difficulties accessing both trade finance and working capital. This challenge prevents them from financing purchases by foreign companies that might be interested; this means that external buyers prefer suppliers that can extend credit. The support from banks and financial institutions is not good; this makes it hard for the SMEs to obtain the finances they badly need to grow the businesses and expand their operations to include exports. This is the case especially since most of the SMEs are startups and lack enough collateral, banks consider than higher risk compared to the larger corporations (Mauro and Shah, 35). The community banks that might be willing to support the SMEs often lack familiarity with exporting and what it entails. The U.S government regulation poses another challenge to the SMEs prospects of participating in the export market. The process that is involved for a firm to be allowed to make exports is lengthy and cumbersome and involves much paperwork; the process is also costly, taking it out of reach for the SMEs. It is difficult to obtain visas that are crucial in the export business; to bring in potential customers or partners to view the local operations of the firm, or to bring in employees for training. This makes it hard for the SMEs to grow in the business. The tariffs charged on imported intermediate input goods that might be needed by the SMEs for their production are prohibitive (Mauro and Shah, 76). Other domestic barriers include high-transport costs. Port bottlenecks when trying to export and container shortages. The lack of economies of scale within the SMEs limits their export potential. Foreign Barriers Foreign government regulations play a big role in discouraging SMEs export form the U.S. The various certification, quality, labeling, and design requirements from country to country make it costly for the SMEs to cope financially and, therefore, unable to support their export endeavors. The protection of intellectual property (IP) is not adequate, and so is the enforcement of the IP laws in the international market; the SMEs thus lose their competitive edge against the larger organizations. Other challenges include the lengthy and opaque customs processes, high foreign import tariffs, restrictive quotas, bans also affect the SMEs. Costly sanitary and phytosanitary (SPS) also discourage the SMEs from participating in exports (Mauro and Shah, 56). The knowledge of the foreign markets is limited; this means the SMEs cannot locate and analyze the foreign markets; the SMEs, therefore, lack the advantage of knowing the potential customers and knowing their needs before they design their products to fit the market. The SMEs are also unable to contact their potential overseas customers. The problem of language and cultural barriers also comes to play; as a result, the SMEs are unable to market effectively and understand the traditions of their target markets (Mauro and Shah, 100). Strategies to Overcome these Challenges The SMEs operators and owners should be made aware of the government programs that have been put in place to aid the SMEs to make the move into the export business and compete favorably. Some of these programs include the U.S. Small Business Administration, Export and Import Bank, the U.S. Department of Commerce, the U.S. Department of Agriculture and other government agencies. The Export and Import Bank plays a crucial role in the economy; it supports U.S. firms to export their goods abroad. It will, therefore, be crucial for the SMEs since it will support them financially in collaboration with other financial firms. Furthermore, the cabinet will aim to support the SMEs financially, it will seek to change the attitude of the financial sector towards SMEs as high risk and view them as partners that if supported will develop profitable relationships. The government should remove or reduce the financial and administrative regulations that are curtailing the SMEs efforts to move into the export business. For example, the government can reduce the import tariffs it charges on the inputs, to enable them to obtain these intermediate inputs to produce their finished products (Masato, 123). Seek a competitive exchange rate. The relative price of commodities is the biggest hindrance of exports. The government through the cabinet can make efforts to ensure the dollar is not overvalued with respect to currencies in Asia including those of Taiwan, China, Singapore, and Hong Kong. This puts the SMEs from the U.S. at a disadvantage to those firms form this region. The government should seek policies with the international community that will allow the SMEs to thrive. The tariffs that the exports are charged should be addressed through Free Trade Agreements and other bilateral trade agreements that will ensure the SMEs are protected (Masato, 126). The domestic consumers should support the SMEs by purchasing their goods locally; this will give them a basis to build on before they start the export business. The SMEs operators should be trained on the international market. The export business is unique and different from the local markets; it will, therefore, be helpful to the SME operators to be trained on the legal requirements and other specifications needed for them to operate in the international market. Information such as the tariffs charged goods, the packaging, labeling, and design specifications; these vary from country to country. This training is especially crucial for the first-time exporters, they need to understand what is required of them, and how their firms are supposed to conduct themselves in the international market, the rules of engagement with other firms in the market and their legal obligations (Masato, 154). The SMEs involve the ordinary Americans in business, supporting this sector will translate to the creation of millions of jobs for them and also growing the economy. The increase in exports from the U.S. will give the GDP of the country a big boost. The service industry will receive a massive boost since more Americans will have disposable income to spend. Trade missions can be sent abroad to create awareness of the firms in the U.S and their potential; this will attract investors and new businesses into the U.S., therefore, winning support for the SMEs. This will also focus the international investor and trade community on the U.S. SMEs sector and take the focus from the larger firms. This will stand the SMEs in good stead going forward. The missions abroad should target the upcoming markets like China, Brazil, India, and also the European Union. The upcoming markets are a good target since they have the fastest growing middle class and thus a growing demand for goods and services (Masato, 171). The small business I am thinking about is the export of cell phone technology and applications together with innovative gadgets to run them. The first challenge this SME will face will be the massive competition it will face in the market from the established and larger multinational companies like Samsung and Apple. To surmount this challenge, the company has to produce goods that standout, goods that solve problems in society, and that will, therefore, strike a rapport with the customers and give it an edge over the other global giant corporations. The ensuing economic conditions in the market do not favor SMEs, the tariffs charged to import the raw materials and pre-products for the production of the intended software and gadgets are punitive and favor the larger corporations. The exchange rate also does not help the SMEs; the fact that some of the Asian economies undervalue their currencies in relation to the U.S. dollar means that the SMEs do not get good value for their investments. It makes exporting goods costly and most importantly drives the prices of the goods produced through the roof and makes them unattractive in the market (McCormack, 117). The industry is volatile; there are constant changes in technology with cutting edge innovation taking place. The SMEs need t...