Globalized BrandsIn 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 the rise of a singular anonymous corporate culture which only varies slightly from country to country. Visiting China today, its hard to argue with Marxs words. The urban landscape is littered with KFCs, Pizza Huts, McDonalds and Starbucks. A trip to a Chinese department store is virtually identical to one in America, with the same multinational brands - Armani, Coach, Chanel, Gucci - lining the halls like an anonymous duty-free airport shop.
However, at a closer glance, todays multinational companies are a far cry from the sinister imperialists that Marx prophesised. 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 dont play by the rules.
While some small businesses - such as the aforementioned local grocer - have suffered, there are those which have avoided being crushed by a large, globalized company. In China, there are still plenty of successful small restaurants and coffee shops, despite the rise of the American multinational eateries. How did these restaurants survive? By providing local menu items - such as dumplings, noodles, Peking duck - that those chains lack the expertise to make. The lesson for a small business is simple - dont keep making hamburgers when a McDonalds comes to town. Sell something else.
Exchange Rates and OutsourcingThere was a time, decades ago, that Made in the U.S.A meant well-made products that you could be patriotically proud of. Today, Made in the U.S.A 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 dont have the advantage of forging outsourcing partnerships with overseas factories, and are at a severe disadvantage in pricing. Multinational corporations, such as Wal-Mart, tend to exploit this business model to the fullest, creating extremely cheap goods in China, 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, its 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. Offer free cross-advertising campaigns and attack the large multinational threat together. While you cant 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.