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What Challenges do Small Businesses Face in the Global Economy?

Small businesses in the United States must contend with the potential challenges of a global economy on two major fronts.

One is found on home soil: the attempt by foreign companies large and small to tap into the consumer market in the United States, where the annual gross domestic product topped $19 trillion in 2017, according to the International Monetary Fund’s World Economic Database.

The other is found abroad: the cultural, social, financial, political and legal barriers to exporting goods and services to other countries.

Small business owners ignore these potential challenges in the global marketplace at their peril.

To begin with, there is a lot of money to be made through the export of goods and services – the kind of money that can make the difference between merely surviving and thriving.

Exports are Big for Small Businesses

Companies in the U.S. exported $1.454 trillion in goods in 2016, according to the U.S. Department of Commerce. The Department of Commerce also reports that the U.S. is the largest exporter of services in the world – $750 billion in 2016.

Automakers and big manufacturers are not the only American business entities tapping into the global market. According to the U.S. Chamber of Commerce, 98% of the 300,000 American companies that export goods and services are considered small or medium-sized businesses.

The Department of Commerce also reports that small companies account for one-third of the value of U.S. exports.

Yet, as important as it is for small businesses to take advantage of the financial opportunity presented by operating outside of the U.S. borders, it is just as vital for some of them to be on guard against competition created by imported goods and services.

For “import-impacted manufacturers,” the U.S. Department of Commerce provides help through the Trade Adjustment Assistance for Firms (TAA) program. This program offers 50-50 cost sharing for projects that are designed to improve a manufacturer’s competitive position.

The TAA program was begun in 1974 and is managed by 11 regional, not-for-profit organizations. At Trade Adjustment Assistance Centers (TAACs) around the country, manufacturers can receive counseling and apply for matching funds for projects that are intended to strengthen operations and increase competitiveness for companies negatively affected by federal trade deals.

International Barriers to Small Business Success

In addition to providing general advice about starting and running a business, the U.S. Small Business Administration focuses on helping small companies break into the international consumer market. After all, according to the SBA, 96% of consumers live outside the United States, and about two-thirds of the globe’s purchasing power is centered in other nations.

The SBA helps encourage the conducting of foreign business through its Office of International Trade. At U.S. Export Assistance Centers and Small Business Development Centers, the SBA helps entrepreneurs find ways to navigate potential barriers to doing business internationally.

These barriers can include:

  •         Language differences
  •         Cultural differences
  •         Access to financing
  •         Transportation costs
  •         Shipping costs
  •         Foreign taxes and regulations
  •         Intellectual property vulnerability

The SBA also can direct small business owners to firms that provide “soft landings” in foreign countries. This term is commonly used in international business and refers to the steps required to mitigate the above-mentioned barriers, as well as help with challenges in language training, employee housing, networking with local vendors, accessing local capital investors, navigating unclear or constantly shifting regulations, acquiring proper business licenses and more.

Digital Business is Global

Small businesses must do more with fewer resources and smaller workforces than large, far-flung corporations. Large international conglomerates can afford to hire experts to navigate the search for international suppliers and distributors, or to work with local customs officials.

Expensive expertise also is required in order to work through the lack of regulatory transparency and consistency sometimes found abroad. Corruption often is difficult to detect even if a company’s agents speak the same language as their contacts; language differences can make it all the more difficult.

While small businesses might not be able to afford to hire the most experienced and expensive international business experts, the digitalization of the global commerce has leveled the playing field.

The internet – and the digital commerce it makes possible – has long been considered the great equalizer for small companies. This is especially true for companies that wish to conduct business outside the U.S. and know how to develop an effective e-commerce strategy.

Digital commerce allows any company to reach extend its reach around the world, while also diversifying the customer base. However, it is not merely a matter of purchasing a website domain name and launching an internet “storefront.”

In order for small businesses to establish and maintain an effective and respectable digital standing outside the U.S., they should:

  • Develop a secure, reliable, trust-worthy, measurable internet platform
  • Be willing to consider working with government agencies to establish public-private partnerships
  • Create trust by providing clients reliable and timely information such as trade data, market information and changes in regulations
  • Encourage online relationship building with customers and suppliers
  • Allow agents to network in person, as well as online

Technology alone will not ensure business success. But the advent of digital commerce provides more opportunity than ever for small companies to compete in the global marketplace.

 



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