Effects of Globalization on Accounting Methods

The Effects of Globalization

Globalization has radically altered how manufacturers operate, offering opportunities to scope new customers in new markets while, exposing firms to greater competition. Meanwhile, raw materials and supplier relationships must now be managed on a global scale. As there are benefits and costs of globalization, there are also pros and cons of a global supply chain. Particularly, companies now need to manage the related risks associated with global expansion.

Furthermore, with the start of globalization, managing supply chains has become more complex and critical than ever before. The recent disasters in Japan and Thailand have stressed the need for effective risk management along the supply chain for manufacturers to minimize interruptions and recommence normal business conditions as fast as possible in the event of a power outage.

Also, when a firm's operations are under its own control, there are less moving parts to deal with. As a result, the firm has better access to relevant and important information. In this type of scenario, it is much easier to identify, quantify, prioritize and moderate risk for better decisions to be made. In an environment that has become increasingly global in nature, there are more parties involved and less information available in the production process.

In my opinion, there are three major factors that impact supply chain risk: Increasing supply chain complexity, decreasing access to information and a greater need for higher quality products, with a need for lower costs. The ability to anticipate and address risk effectively has been problematical by the complication of different accounting standards, ad GAAP is not accepted universally. Now that manufacturers are outsourcing more production to suppliers across the globe, it has become difficult to track, trace and monitor production.

In the end, I feel that a global marketplace has been both a blessing and a curse. While new markets have opened up, greater risks now occur, which impacts the bottom line of companies. In addition, as these risks could be compounded with each other, it is critical for manufacturers to increase their transparency into not only their own operations, but also to those of their suppliers.