Impact of Globalization on Sme with Respect to Tanzanian...

1.0. INTRODUCTION Looking back, the next generation’s economists may be puzzled by the structure of the world economy in 1995. Today, developing countries (DCs) and the former Soviet bloc account for about one half of world output and the rich industrialized countries for the other. But this picture is likely to change rapidly over the next 25 years: At current growth rates, the rich world’s share of global output could shrink to less than two fifths by 2020. Although the absolute magnitudes are uncertain, it is safe to assume that there will be an enormous shift of economic power from today’s rich countries to what are still labeled DCs, and especially to Asian DCs This shift is the likely result of the ongoing globalization of economic†¦show more content†¦As transaction and communication costs fall, the proximity between sellers and buyers, which has traditionally been considered to be essential for many services, figures less prominently. Most important in this regard is that financial capital has gone global. Nowadays, the financial centres of the world economy provide the possibility for 24 hour trading in all sorts of financial assets. The deregulation of other business services such as banking and insurance also offers new opportunities for the tradability of services. Hence, standardized business services have become available around the world, which, in turn, has made the international fragmentation of production feasible. As a consequence of all this, not only the constraints on firms, but also on governments have completely changed. Globalization shapes the world economy in different ways. Most obviously, international trade and capital flows are affected. Over the last 30 years or so, international trade has grown faster on average than production, implying a more integrated world economy. Closer integration brings about opportunities for specialization, and hence increases interdependencies. This is highlighted by changes in the structure of world trade. For example, international sourcing, i.e. the purchase of intermediate inputs from foreign sources, has grown faster than domestic sourcing and now accounts for about half of all imports by major countries [OECD 19946d]; intra-industry trade has