Posts Tagged ‘foreign competition’

The Value of Small Business to the US

Tuesday, July 14th, 2009

Recently The President of the U.S. received a report entitled:

2009 - The Small Business Economy
A Report to the President

This is an annual report complied by the Office of Advocacy whose charge is to conduct and solicit research documenting the importance of entrepreneurship in the American economy and highlighting policy issues of relevance to small firms. This report contains some very interesting and informative facts. Among them small businesses in the U.S. provide about half of the nation’s private sector work force, and provide half of the nation’s nonfarm, private real gross domestic product (GDP), as well as a significant share of innovations.

In the introduction, the authors point out:

Small businesses were challenged in many ways during the year, with many struggling to make ends meet. Their top concerns in the middle of 2008 included poor sales and inflation; by year’s end, access to credit was a major concern. The nation’s job generators were forced to reevaluate their businesses, lay off workers, and postpone plans to grow their firms.

This is nothing new to any of us who are actually out in the trenches fighting the day-to-day battles. The report goes on to cite the current challenges faced by small firms, including access to capital, the cost and availability of health insurance, retaining a quality work force, global competition, and concerns about taxes, regulation, and federal procurement.

It was also noted small firms faced difficult challenges in the extremely distressed financial environment. The credit freeze in the short-term funding markets had a devastating effect on the economy and small firms. By late 2008, the normal production of goods and services had virtually stalled. While the first half of the year was largely un-effected by the changes in the financial sector, by the fourth quarter loans and credit to small businesses virtually stopped.

One of the most interesting observations was that small businesses can be divided into two groups, employers and nonemployers. The later would be single owner/family operations that do not employ outside workers. Overall, the researchers noted how the typical nonemployee firm and employer firm differ. The most immediately obvious difference is their size and number. Employers are larger operations, but nonemployers outnumber employer firms by a three-to-one ratio.

When it comes to the impact of foreign competition on small businesses several factors come into play. Small manufacturers, by the nature of their size, are less able to protect themselves from foreign competition than large manufacturers. Overall, the study fount that increased international pressures in the form of currency exchange rates lead to increased exit rates among very small manufacturers (those with fewer than 20 employees). Slightly bigger manufacturers (20-499 employees) are less sensitive to changing conditions.

While none of this is news to those in business, at least the President is now somewhat aware of the plight of small business. Whether anything can be done to improve the situation remains to be seen. The stimulus efforts to date have been weak at best.