Advanced Authentic Research

Effect of Disappearance of Small Businesses on the Market by Tamari D. & Tak N.

Summary

In recent years, there has been a rise in the amount of large businesses and chains, pushing local businesses out. Though the opening of large stores aims to provide an increase in employment and revenue, in practice this is not the case. In 2009, Loyola University in Chicago studied the effect of opening a Walmart in West Chicago and found that 82 local stores went out of business within two years, generating no new revenue for Chicago and resulting in no increase in employment (1). However, Walmart is not the only large corporation that is taking jobs and ruining small businesses. Looking around Palo Alto, we have several large chain businesses such as Target, Walmart, Safeway, Whole Foods, and Starbucks. These businesses, who sacrifice quality for quantity and price, have the potential to drive smaller businesses out through economies of scale which make it much cheaper to mass produce goods than it is to create them individually. A representative from Goldman Sachs, a leading investment firm, stated that “Small businesses play a vital role in creating jobs and growth in America’s economy”(2), which is clear when you look at the statistics. Small businesses have created 64% of the new jobs created since 19953, and are extremely important for local economies. When people shop at small businesses, they are giving their money back to their community, as opposed to shopping at large corporations where that money could be going anywhere. A study done by Civic Economics in 2012 showed that locally owned and operated retailers returned 52% of their revenue to the local economy and restaurateurs returned 78.6% or their revenue to the local community while national chains returned a mere 13% of revenue to the local community (4). This presents the problem that the extinction of small businesses holds: more money will be circulated among the large corporations, allowing them to further monopolize the market...We propose undertaking a research project researching the effects of large corporations on small businesses and the overall effect the closing of small businesses will have on the economy. As our research gets deeper, this idea will evolve...This project is important because small businesses are often overlooked, when in reality they are an important component of the economy; it is interesting to see the impact of corporations on small businesses and the overall effect on the economy now and in the future.