The Roadblocks to Going Global

Small businesses have more opportunities in foreign markets but difficulties, too.

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As small businesses continue to explore global markets, it's important to remember some caveats. There seems to be a notion that developing world markets in China and India are not only the next big thing but the only big thing. This article on the "new global middle class" sums up the thinking of professors at the Wharton School of the University of Pennsylvania.

[Diana] Farrell [director of the McKinsey Global Institute] notes that many Western firms focus on services, but that this sector is not as developed among the rising middle classes as consumer goods. "When it comes to services, we're pretty [much in] the early days," she says. One obstacle to reaching new consumer markets with services is regulation in foreign countries. For example, she points to India's restrictions on foreign ownership of retail businesses.

China and India are already huge markets and will only become more important. But as the Wharton professors explain, there are several barriers that will make it difficult for American companies, especially small ones, to get a slice of that growing pie.

1. Even as the middle class grows in China and India, it will still be much poorer than the middle class in the United States and Europe. American companies aren't used to marketing to that demographic.

2. Local firms are going to snatch up much of this new demand, and they have a cultural advantage that foreigners will find hard to duplicate.

3. This is not really explored in detail in that article, but I would add that there's always protectionism that could get in the way and frustrate American businesses trying to tap into global markets. Considering that the U.S. Congress is far from abandoning protectionism, there's little reason to think that China or India will abandon it anytime soon, either.