Question

Multinational enterprises (MNEs) have an impact far beyond their firm boundaries. Assume you are working for a small firm that supplies a product or service to an MNE. How might your relationship change as the MNE moves from Globalization 2.0 to Globalization 3.0 operations? Being a “small firm”, what are some examples of how this relationship change could potentially benefit the company? How might the change affect a small supplier in a negative way?

Answer 1

Globalization has important effects on the local economy, enterprises and workers. Smaller suppliers of large MNEs would transition from tumbling firms to soaring, sustained ones with the economic gains shared more broadly. However, this transition for a small supplier, when a global player moves on to the next phase of globalization, could be long and at times even painful and in some cases may generate anti-globalization sentiments. The relationship tends to shift from that of a supplier to that of a partner willing to grow at a brisk pace and incorporating the changes coming along the way of this growth.

The smaller supplier could benefit in multiple ways because of this transition. As the larger player moves on to more technology enabled platforms to achieve the scale in the days to come, the supplier in order to keep pace must adopt a similar integral platform to sort out the supply chain for the larger player. This would not only benefit the larger MNE, but also the smaller supplier. With a technology backed platform – ERP, the smaller firm can now look to expand his business too, beyond the existing partners. This apart from the cost advantages one would get by the platform

However, there can be negative effects too. Larger MNEs are often criticized for destroying local businesses who are their suppliers by constant under-cutting and reduction in prices. Additionally, if the supplier isn’t successful in keeping up with the desired prices, they explore the additional option of cheaper imports which in the long-run would cripple the smaller player completely. Bigger MNE players view this as setting high standards of efficiency in the local suppliers, boosting their productivity when seen on a broader scale.