The rise of globalization coupled with the increasing penetration of the internet has unlocked global markets for small businesses. Now, small and medium enterprises can access services and products from countries like India, China, Brazil and others. In the past, only larger companies from the United States and Europe had been able to increase their competitiveness by taking advantage of the cost savings available through outsourcing.
Wal-mart is a prime example. The retail giant sources more than $12 billion in goods from China every month and claims that it saves families over $2,500 every year compared to smaller stores. The sourcing strategies are tilted heavily towards economies of scale both from the vendor and the vendee side. Generally, the larger the vendor the bigger the brand name. This reduces the risk of receiving poor quality products and services, and having commercial contracts violated. Larger and more established vendors are also more interested in serving bigger companies. Smaller vendors adopt similar strategies and pitch their products and services to bigger corporations in hopes of building a high profile clientele.
On one end, this strategy is understandable since costs of sales and marketing have been high. It doesn’t make sense for smaller vendors to target a large number of small business clients or to outsource their service or product needs.
There is good news. The increasing openness of these emerging market economies like India and China has increased the availability of venture capital money. New businesses are focusing more on small and medium enterprises as their clients. The emergence of market places like Alibaba.com has opened new possibilities for small businesses. On the online platform, multiple vendors bid on sourcing projects and are matched with a suitable vendee.
The market has developed rapidly for software services. They are easier to execute from a distance and more standardized. Logoworks.com which offers standardized logo and Web site design services for small and medium enterprises was recently acquired by Hewlett Packard.
Unfortunately, we still have a long way to go before small business can fully benefit from this growing global opportunity. As the demand for small business fulfillment services increases, the sourcing mechanisms will become more attuned. Many ethnic small business owners already have an inherent advantage in the sourcing industry over big business. With strong ethnic family ties and links to their native country, these entrepreneurs can easily tap into the cheaper product and service markets.
Particularly, the service industry will develop faster. With the cost of bandwidth falling sharply, services are cheaper and more efficient. Small businesses can quickly and easily build up their clientele in host countries because economies of scale play a minimal role compared to product sourcing.