With the onset of globalization small cosmetic companies cannot compete against multinational ones As globalization is an ongoing process of greater economic interdependence among countries, reflected in the increasing amount of cross border trade in goods and services, the increasing volume of international financial flows and the increasing flows of labor (Stanley Fischer,2003), a profound impact on the beauty industry is obvious. In 2007, even multinational cosmetic companies were confronted with the doom of bankruptcy, due to the Global Financial Crisis, to say nothing of small business.
There is no doubt: small cosmetic companies cannot compete with multinational ones. This opinion is based on the following reasons. Multinational cosmetic companies manufacture products globally, while small ones manufacture locally. According to a survey, after the entrance of China to WTO, with its flexible tariff policy and low-priced labor force, an increasing number of multinational companies set up branches, shifting their manufacturing business there, making China as the biggest cosmetic processing base throughout the world.
In this way, the cost of some products made in China is 50-60% lower than those made in the original countries. However, a majority of small companies due to limited capital are restricted to hiring expensive local labor, which gives rise to a high cost in the processing procedure. When it comes to raw material, it is evident that multinational corporations enjoy greater advantages. To some extent, their processing businesses are spread to places where they can gain cheap raw materials. For instance, as Thailand is abundant in olive oil, a large number of multinational essential oil companies choose to establish their factories there.
Thanks to the low cost on raw materials, those companies are more competitive than small ones, which are unable to reduce their costs when they sell to consumers. Another important reason is their ability to use global commercial power. Multinational companies, with their adequate capital, are able to make most of advertising to promote their products and in most cases, do it globally. Whereas small companies, due to insufficient capital, can seldom spare the funds to produce an advertising campaign. They are confined to a local market and it is hard for them to establish a global image.
It goes without saying that the main consumers, woman, are slaves to marketing. They need brands, and vice versa, brands need them. Without a reputation, especially in the fashion world, possibility of winning women’s heart for small companies is slim. Finally, multinational cosmetic companies have a greater power to weather catastrophic economic events like the Global Financial Crisis. For example, data from the Australian Bureau of Statistics shows in the two years from June 2007 more than 80% of Australian small businesses shut down.
Research conducted by the Commonwealth Bank shows that 40 percent of small cosmetic businesses in Australia are finding trading conditions tough. These figures demonstrate that small businesses cannot compete against big international enterprises. In conclusion, with the onset of globalization small companies cannot compete against multinational ones by reason of: high cost of labor and raw materials, inability to advertise globally and incapability to survive economic turmoil like the GFC.
Bibliography Insolvency Experts (25 October 2010) Full hit of GFC on Australian business revealed http://www. liquidationdirect. com. au/blog/full-hit-of-gfc-on-australian-business-revealed/ (Accessed 9/02/2011) Drew Cratchley (June 4, 2010) GFC still hurting small business: CBA http://news. smh. com. au/breaking-news-business/gfc-still-hurting-small-business-cba-20100604-xjwk. html (Accessed 9/02/2011)