Posted 22/10/2016 in Category 1

Stand up to Globalization, Help Small Businesses to survive another day

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Stand up to Globalization, Help Small Businesses to survive another day

Impact of Globalization on Small Businesses 

The following is a classic story, often used by socialists to highlight the "evils of a capitalist society" - the small town grocer gets mercilessly taken out by the new global retailer in town. The small town grocer may have an established customer base and friendly relations with the community, but it simply can't match the low prices offered by global players. Being a large national company, they have the sprawling global resources and is willing to sacrifice margins to take out local competitors. In the end, customer loyalty means nothing and the grocer may go bankrupt, decades of hard work decimated overnight. This is a well-known anecdote referring to the impact of globalization on small businesses. Once you start up a new business, you plunge into an ocean populated by a few smaller fish, which compete with you for food, and lots of bigger ones, eager to eat you alive. The big fish in the sea tend to be well-connected, multinational beasts taking full advantage of the perks of globalization - such as outsourcing, uneven exchange rates, and low-margin high-volume sales models - making them nearly impossible to compete against. What are the impacts of globalization on the small business owner, and how can you defend yourself from the blows that will inevitably come your way?

Globalized Brands

In "The Communist Manifesto", Karl Marx famously warned that small local businesses will inevitably be wiped out by large multinational companies in a form of imperialist capitalism. According to him, the destruction of local businesses leads to the loss of local culture and values and the rise of a singular anonymous corporate culture which only varies slightly from country to country.  The urban landscape is littered with KFCs, Pizza Huts, McDonald's and Starbucks. A trip to a local department store is virtually identical to one in US, with the same multinational brands - Armani, Coach, Chanel, Gucci - lining the halls like an anonymous duty-free airport shop. 

However, at a closer glance, today's multinational companies are a far cry from the sinister imperialists that Marx prophesied. Brands are highly localized to accommodate local tastes, and companies have forged mutually beneficial relationships with foreign countries to further their sales. Foreign governments are also quick to kick out offenders who don't play by the rules.

While some small businesses - such as the aforementioned local grocer, retailer - have suffered, there are those which have avoided being crushed by a large, globalized company. In India, there are still plenty of successful small restaurants and coffee shops, despite the rise of the global multinational eateries. How did these restaurants survive? By providing local menu items - such as dumplings, noodles, local spices - that those chains lack the expertise to make. The lesson for a small business is simple - don't keep making hamburgers when a big Mac comes to town. Sell something else.

Exchange Rates and Outsourcing

There was a time, decades ago, that made in west meant well-made products that you could be patriotically proud of. Today, "Made in West" usually means paying high labor costs, dealing with labor unions and earning hopelessly tiny profits on slim product margins. It was due to this that outsourcing - or shifting your production base to another country - became attractive. Lower material and labor costs in a country with a weaker currency boosts profits considerably.

Small businesses usually don't have the advantage of forging outsourcing partnerships with overseas factories, and are at a severe disadvantage in pricing. Multinational corporations, tend to exploit this business model to the fullest, creating extremely cheap goods in China, Vietnam is marking them up only slightly and only earning only a slim margin on each product. The goal of this business model is to use high sales volume to offset its low profit per product. A more immediate goal is to undercut any local competitors, who are physically unable to match those low prices due to the lack of an outsourcing infrastructure and wipe them out with a pricing war. After all these local competitors have been eliminated, Wal-Mart is free to raise prices again, since it has established itself as a local monopoly.

As a small business, it's nearly impossible to protect yourself from this kind of assault. If you want to stand your ground and fight, then the best strategy is to ally yourself with other local businesses and pool your resources. Join local business directories, Local service providers are one the few steps the local Grocers, and retailers can do to withstand the onslaught of multinational retailers. Offer free cross-advertising campaigns and attack the large multinational threat together. Posting free classifieds and online ads in local classifieds websites like indyapages, helps wade of and survive yourself. While you can't offer discounts on all your products to fight back, offering rotating sales on select products can attract customers. In an all-out war against the big guys, the enemy of your enemy is your best friend.

Small businesses defensive, but connect with local business directories (SME. MSME)

Small businesses often drop like flies when targeted by a multinational corporation with strong globalized ties. However, forging a strong identity and solid alliances with small competitors and popular local directories like Indyapages can increase your chances of survival, so that your small business lives to see the day that it matures into a globalized company.

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