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Accounting and Globalization In Relation to Small Companies

April 11, 2012 | Comments: 0 | Views: 179

Globalization is a topic that affects business across the world constantly. It is the attempt to unify all of the worlds' economies in hope to reduce the international trade barriers. I will examine the effects of globalization from the perspective of an accountant for a local restaurant in Philadelphia, and I will propose potential problems that may arise from Globalization, and introduce variables that could impact a company very negatively if left unnoticed by an Accountant.

The first topic I want to introduce regarding globalization is its effects on the businesses exchange rate. Perhaps the owner of the restaurant wants to only import materials from a certain country for quality purposes such as Italy. The exchange rate of currency between countries caries and could impact companies pricing on their products due to product cost possibly rising or falling, therefore putting pressure on accountants to keep their ledgers organized, even with differing currency. Shipping costs attached to the products also often determine if it will positively or negatively affect the ending cost of the product, making the accountant responsible for understanding current import and export rates, to make sure future predictions are accurate for the Restaurant.

Companies can benefit from globalization for the above reason of cheaper products, but it relies on the foreign countries supplies to remain stable. Assume the restaurant wants to only buy food products from Italy. A drought in Italy would directly impact the small business located in Philadelphia, changing the costing function for the accountant to be able to predict future revenue for the restaurant. International relations also impact the pricing, creating more barriers to international trade between countries. These barriers include tariffs, embargoes, and quotas. An embargo is a complete prohibition of trade between countries, which an accountant would have to re-evaluate the restaurants suppliers. Tariffs are taxes on imports and exports, which affect the cost function dramatically. A quota is a limit on the number of imports from a country. If the supplier is limited, the accountant must adapt their strategy when buying, whether it be change suppliers completely, or whether it is having two possible suppliers.

Our country's relationship with other nations also affects the restaurant in Philly by causing social changes in society. If Italy went to war with an ally of the US, your normal customers in the restaurant could have hostility towards where your product is coming from, and they may not want to support your trading with Italy. Accountants would have trouble even dealing with their suppliers if there is too much tension between the countries.

The restaurant can also be affected by changing ethnic groups within the immediate area of the restaurant. Suppose an ethnic group opposed to the society of Italy moves into the area. This will directly affect the consumer base in your area, requiring a change in your product to meet the needs of your new consumers. Accountants cannot predict revenue correctly if the surrounding communities culture is constantly changing.

A small company can also be affected by globalization by the changing requirements within the country and around the world about new policies such as reducing greenhouse emissions. Many companies have legal obligations to minimalize the amount of damage they inflict on the environment. The most prominent example would be how they dispose of their cooking oil and grease that they create as byproducts throughout the day. These costs must be accounted for and depending on changing regulations, it poses future possible problems for an accountant's strategy for the restaurant. There are certain ways a company is supposed to dispose of such material as to not hurt the environment. Power consumption also is a big deal to regulators of companies, which only adds to the list of things accountants need to be aware of.

It is easy to see how global issues can affect even the smallest business, and as an accountant, there are multiple factors to consider about globalization while running one. It is important to be aware of these factors if you wish to remain competitive within both global and local markets, because if an accountant finds himself unaware of the changes happening around him, he could hurt the business he is working for drastically.

Joseph Clark Accounting Major WestChester University

Source: EzineArticles
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