Can you believe it? There are 33.3 million small-scale companies within the U.S., making up 99.9 percent of U.S. businesses. It’s more than just a number but the foundation of our economy.
Globalization has changed the way local businesses function. In the past, small businesses mostly competed with stores in the city. Locally-made products were made, bought your supplies locally, and sold them to local clients. Simple. Even the tiniest business owner must think globally. You’re competing against items from China as well as services from India and digital offerings from any location.
Consider a small furniture maker from North Carolina. 20 years ago, they were competing with other local craftspeople and perhaps some larger American makers. Today, they’re competing against the mass-produced imports that are only a tiny fraction of the cost to produce. However, it’s not all bad because the furniture manufacturer is now able to sell their products online to clients who reside in California, Canada, or even Europe without having any physical stores in these areas.
Small Business Employment Impact
Small-scale enterprises employ 61.6 million people, which amounts to 45.9 percent of the U.S. workforce. This staggering share of employment shows the need to know the impact of globalization on these companies – and when it hurts, almost half of Americans suffer from it. The trend towards globally-based supply chains has provided small-scale businesses with the chance to focus on niche markets, as well as posed threats to those who are unable to keep up with international labor costs.
- Increase in Remote Work: In January 2024, 29 percent of U.S. workdays were remote, which is up of 7% as of the year prior, which was facilitated by the globalization process and technological advances (WFH Research). Local businesses are now employing professionals from all over the world, cutting costs, but they are also competing for qualified workers.
- Low-Wage Competition: In low-wage countries like Bangladesh, garment workers earn less than $100 a month, as in contrast to the U.S. worker’s daily wage of around 120 dollars, causing local companies in high-wage areas in the region to contract out (National Geographic 2023).
- Jobs Creation: Small-scale businesses located in the U.S. generated 12.9 million new jobs in the past 25 years, or about two-thirds of all job growth that has remained resilient in the face of globalization (Small Business Administration 2023).
The Trade Balance and Local Business Problems
U.S. trade deficit was about $1 trillion in 2022, which reflects the impact of globalization on the balance of trade.
This huge trade deficit is directly related to our main subject, as it is concrete evidence of the way globalization has changed the landscape of business. If the amount of imports exceeds the amount of exports at such a large margin, that means foreign goods are dominating areas where local businesses previously prospered. This results in fierce price competition that small businesses must compete against, particularly in the manufacturing sector. However, it has created opportunities for small-scale businesses that can make a mark in supply chains across the globe or offer services that cannot be outsourced.
More Competition
Globalization has increased local businesses’ competition to levels we’ve not seen before. It’s no longer just about battling with the store across the street now – you’re competing with global players. This increased competition impacts diverse industries in a variety of ways, and everyone is subject to it.
A major and notable result of globalization is the increasing competition that local companies face from multinational corporations. These giants from the world benefit from economies of scale, which make it possible to provide lower prices and a greater variety of goods that smaller local businesses cannot offer. Consider e-commerce websites, for instance. Amazon has taken the spotlight from chain and local retailers and now has to increase its presence online or target a particular market segment. This will allow local businesses to be more efficient and competitive, while also removing them from the market.
The textile industry is a prime example that is thriving in the small towns of America. A family-owned and operated textile mill that has been in operation for generations is now competing directly with the manufacturers of Bangladesh, Vietnam, and China. Their costs for labor are less than the amount U.S. workers earn. Even when shipping is included, their overseas rivals can frequently deliver finished goods at a lower cost than the American mills pay to purchase raw material. This has prompted several local textile companies to either shut down their operations or completely reinvent them.
The proprietor of this mill’s family might have been worried about competitors from the next county. They’re now analyzing the exchange rates of currencies and international trade policies in order to be aware of their competition. They’ve needed to invest in technology they could not afford previously or specialize in top-quality fabrics that their competitors from overseas can’t compete with, or switch towards small-batch, custom-made production where their proximity to their customers can be a benefit.
The same pattern is seen across many sectors – local bookshops fighting against Amazon and small hardware stores competing against Home Depot’s worldwide supply chain, and family restaurants competing against multinational chains. The battle isn’t only about price. It’s about the ability to access the world’s talent, technology, and capital. A small-sized software company located in Missouri does not just compete with other developers in the area, but also groups that originate from Eastern Europe and India, who are often able to deliver similar tasks at a lower cost.
- Cost Reduction Global sourcing has helped reduce the cost of materials for small-scale businesses by a factor of 10 to 20% in fields such as retail and manufacturing; however it also increases the risk of interruptions (McKinsey Global Institute 2023).
- Risks of disruption: The supply chain crisis boosted the cost of shipping by up to 400 percent (e.g., the cost ranged from $12,000-$10,000 per container), which hit small-sized companies more severely than larger firms with diverse sources (World Economic Forum 2024).
- The adoption of Technology 60% of small-sized businesses globally have adopted cloud computing or automated processes by 2023 in order to compete with global supply chains (ResearchGate Study 2024).
Opportunities for Expanding
- Access to customers from all over the world without having to be physically present – the craft brewery located in Colorado is now able to ship special beers to beer lovers in Japan, which was not possible 20 years ago.
- More affordable sourcing of components and materials: Furniture makers can now acquire special components from Germany at prices that would previously only be accessible to the largest manufacturers, thereby leveling the playing field.
- Global talent pool, small design firms are able to employ freelancers with specialized skills from all over the world to work on specific projects instead of being restricted only to the local market or costly full-time staff.
- Potential for niche markets – companies are now able to find clients for their products that are highly specialized through tapping into global demand instead of only local interest, making previously ineffective business models financially viable.
- Marketplace visibility on the digital market: Even small sellers can offer their goods on international platforms such as Etsy or eBay and gain visibility previously requiring huge advertising budgets in order to achieve.
- Innovation transfer and knowledge sharing: Small businesses are now able to get best practices and new ideas from around the world in addition to their local businesses.
One illustration of how globalization could assist local companies is Lottoland. The Gibraltar-based firm has been successful in expanding its current national headquarters thanks to its global strategy for marketing. Today, it operates a variety of sites that provide online bingo, as well as various other gambling games. This example shows the way globalization can create an opportunity for a local company to expand its reach and boost its revenue while taking care of different regulatory concerns.
The ramifications of Globalization
- Language and cultural barriers that result in misunderstandings. A small electronics business trying to reach agreements with Chinese suppliers is caught in translation, resulting in delays and money that bigger competitors can easily absorb.
- The logistics of international shipping are complex – an established family business in the cosmetics industry is faced with the challenges of regulations for customs, carrier limitations, and shipping costs which vary widely by destination, causing headaches that their local competitors don’t.
- Risks of currency fluctuation: A small importer of Italian olive oil is able to see its profits disappear overnight as the Euro grows stronger in comparison to the US dollar, but not use the tools that larger firms utilize to protect themselves from these changes.
- Intellectual property issues – a boutique jewelry designer finds unauthorized reproductions of his designs that are being produced in other countries, with no legal recourse, unlike the domestic market, where protection is easier.
- Ethics-related sourcing issues: A small-sized clothing company is unable to confirm the working conditions in its overseas production, and lacks the resources required to conduct checks that larger brands afford.
- Compliance with regulations across different areas – a small software firm must manage data protection laws like GDPR within Europe, CCPA in California, as well as a host of other laws regarding data protection, without the legal support that their competitors from multinationals have.
Conclusion
Globalization poses both a threat and an opportunity for local companies. While it creates competition from foreign companies but it also offers unimaginable opportunities for growth and development. As the market shifts, local businesses need to be flexible and ready for the changes. This allows them to explore specializations in the market and add variety for the regional economy through using their strengths in a unique way and leveraging global trends.
