The word “business” encompasses a stunningly diverse span of entities.
On one end of the spectrum are the continent-straddling multinational enterprises moving raw commodities, semiconductor chips, or physical goods that power the modern world. Their names are globally known and recognized.
On the other end of the spectrum are the classic ‘Mom and Pop’ shops, run by sole or family proprietors, that serve their local community and offer everything from car repair to books to carpentry services.
In a globalized world, businesses of varying sizes, with expertise and complexity, from both ends of the spectrum and the many millions more in between coexist and sometimes compete in the same marketplace.
This piece aims to investigate how the impact of a globalized world and economy affects the smaller, more local businesses that operate in local communities worldwide.
Understanding how globalization influences these smaller players is crucial because small businesses form the backbone of many local economies, providing jobs, fostering innovation, and preserving cultural identity.
Table of Contents:
Economic Impacts
It is often thought that globalization is a net negative for local businesses due to increased competition, lower margins, and lower profitability due to competing with global titans. However, there is also an alternative reality.
Local and small business globalization offers these industries unprecedented access to larger markets, allowing them to expand beyond regional boundaries. With the internet and international shipping, a local artisan or a small manufacturer can now sell products to customers across the globe. This opens up new revenue streams and opportunities for growth that were once out of reach for smaller enterprises.
I have had the privilege of witnessing this myself with several companies that I am affiliated with, in industries as diverse as fashion retail (Gedebe), architecture and design (Studio Razavi), and events and entertainment (Inspiration).
The impact on product availability and the related customer satisfaction metric is also key for smaller enterprises. Globalization has completely reshaped supply chain dynamics. Gone are the days when a business could profitably rely on a network of local or national suppliers to fulfill its needs. That is now a high-cost strategy, perhaps only suitable for high-margin businesses such as luxury goods providers.
Most businesses instead source materials and products worldwide at competitive prices, improving margins. However, in doing so, they must accept increased vulnerability to disruptions such as shipping delays or geopolitical tensions that affect the flow of goods.
Technological Advancements
Globalization has also accelerated the adoption of new technologies like cloud computing, artificial intelligence (AI), and automation, pushing small businesses to innovate to compete. The global nature of the major cloud, productivity, word and web processing, and information retrieval providers has accelerated this trend. I’m referring to industry-straddling technology platforms like Microsoft, Amazon, Google, Salesforce and Shopify.
The rise of digitalization has also dramatically reshaped local industries. Businesses are increasingly moving their operations online, utilizing digital tools like Customer Relationship Management (CRM) systems and Enterprise Resource Planning (ERP) software to manage everything from client relationships to supply chain logistics. This shift allows even small, local businesses to enhance productivity and reach new customer bases. Yet, many small businesses struggle with the transition due to a lack of digital literacy or the high cost of adopting such systems.
For example, local retailers that once relied solely on foot traffic now need to maintain a website, manage social media accounts, and optimize for search engines. Running a business was already a full-time job before the advent of each of the tools and marketing channels mentioned above. Still, these requirements add another burden on small business operators’ time and resources.
Alongside the above, e-commerce platforms like Amazon, Shopify, and Etsy have revolutionized how small businesses reach consumers, providing global exposure to local sellers. These platforms offer significant advantages, such as access to millions of potential customers, streamlined payment processing, and logistical support through services like Fulfillment by Amazon (FBA). For businesses with niche products, this global marketplace can be transformative, enabling them to find demand beyond their local area and reach the small business equivalent of an “economy of scale,” which would have been otherwise impossible without access to a broader audience than their own geographic area.
However, the cons of these platforms include platform fees, advertising costs, and the requirement to adhere to stringent platform policies and the investment required to do so. These factors can all squeeze profit margins.
Small businesses often find themselves in a race to the bottom, competing on price against much larger companies. While platforms like Shopify offer more autonomy, allowing businesses to build their brand and retain customer data, managing an online store requires an ongoing investment in marketing, logistics, and customer service and learning the best way to optimize a particular business to the platform it operates on.
Cultural Influences
One of the best examples of local business globalization impacts is the presence of cross-border influences on locally available food options. Neighborhood cafés from Seoul to Sydney offer matcha lattes. At the same time, the Tiktok-driven “hot honey” and “hot syrup” that adds a hefty dose of chili to honey and maple syrup to accompany savory dishes have been expressed from the market stalls of London to the Izakaya of Tokyo.
Consumer preferences are also shifting, with people favoring global brands or trends over traditional, locally-made products. For example, fast fashion retailers like Zara and H&M have changed how consumers buy clothing, often sidelining smaller, local boutiques that can’t match their prices or rapid production cycles. Temu and Shein represent the next, faster, cheaper, and more global evolution of these trends, with the intermediary retail brand cut out from the transaction and the factories able to serve the end user directly.
Regulatory and Policy Changes
The nature of rules-based liberal societies means that the same set of regulations tends to apply to all businesses. Globalization forces small businesses to navigate the same complex international trade regulations as their larger peers. For example, businesses exporting goods may face tariffs, import quotas, or customs procedures that add to their operational costs and complexity.
Trade agreements also significantly impact local industries. These agreements often reduce trade barriers, allowing larger international companies to enter local markets more easily. While this can benefit consumers with lower prices, it also intensifies competition for smaller domestic businesses.
Challenges and Risks
Businesses operating beyond their local or national markets become susceptible to economic events and market downturns in other regions. A small manufacturer that relies on foreign suppliers could face rising costs due to sudden shifts in exchange rates or trade tariffs. Events such as Brexit or trade wars have demonstrated how such events can severely disrupt supply chains and alter previously stable pricing structures, affecting even businesses with minimal international exposure.
Intellectual property protection also remains a significant concern. Even the smallest businesses with a hit product are not faced with the challenge of protecting their unique products, services, or innovations. In markets with less stringent intellectual property enforcement, there is a risk of counterfeiting or imitation. For example, a small tech startup may develop a groundbreaking software product only to find that copycat versions appear in countries where intellectual property laws are not strongly enforced. Even comparably “low tech” industries like retail and makeup are victims of this trend with the rise of “dupes” (unbranded items that closely resemble the genuine article) enabled by fast-fashion copycat factories in low-cost manufacturing locations that can replicate and ship products to customers quickly.
This can erode market share, damage the reputation of the original business, and make it impossible to maintain profitability as sales fall. Legal recourse in these instances is often costly and time-consuming, making it harder for small businesses to defend their intellectual property rights than larger corporations.
Opportunities for Growth
As I mentioned earlier, the challenges are only half the story. On the other hand, small business globalization opens the door for expansion into new markets, giving them access to a larger customer base beyond local borders.
By tapping into international demand, a small artisanal food producer, for instance, could export niche products to regions interested in specialty or gourmet items or where expatriates who want a taste of home can connect with the cuisine being produced. With e-commerce platforms and online marketplaces, businesses with limited resources can now easily reach consumers globally.
Collaboration and partnerships with international businesses also present a significant growth opportunity. Small businesses can share expertise, access new technologies, and enter markets with a local partner’s guidance by forming strategic alliances with foreign companies.
Adaptation Strategies
The benefit of being small is being agile. Consider how quickly a small fish can whip its tail and change direction compared to the time it takes for a larger, slower-moving whale to do the same thing.
Agility and adaptability are key strengths that can be leveraged to navigate the complexities of small business globalization. The ability to respond quickly to market trends, consumer preferences, or regulatory environment changes can determine long-term success. The speed at which small-batch craft distilleries could pivot to producing hand sanitizer during the pandemic is a fantastic illustrative example of this in action.
Investing in workforce training and development is another significant strategy. Global competition often raises standards and expectations, so local businesses must ensure their teams have the latest skills and knowledge. This could involve upskilling employees in digital technologies, cross-cultural communication, or international marketing strategies. For small businesses, the goal here should be to go “deep” in a particularly profitable niche and develop staff in a way that allows them to serve the customers in that niche fully. That ensures the optimal allocation of resources compared to a broader, more generalist approach. The experience of the German Mittelstand is instructive here.
Finally, enhancing local branding and unique selling propositions is vital for standing out in the global market. Small businesses can leverage their local identity to offer something distinctive that large multinational companies may not. Brands with a strong local reputation that they are looking to leverage offshore can pursue this with great success, as the experience of premium infant formula company A2 Milk shows.
Conclusion
Globalization undoubtedly presents challenges for small businesses and local industries. But alongside those challenges are opportunities.
The dualities exist throughout the market. Access to larger markets is accompanied by increased competition. Labor and cost-saving technological advancements promise better margins but require adaptation to digital trends. Cultural influences can diversify product offerings and shift consumer preferences, yet businesses must navigate regulatory and policy changes and adaptation strategies to remain competitive.
Agile, flexible, innovative small businesses and enterprises have tremendous opportunities in today’s globalized marketplace. Perhaps the most valuable tool they can have, though, is leaders with an open, curious mindset who are energized by the potential of what lies before them. Those businesses are well-placed to thrive.
