SMALL BUSINESS

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RESEARCH SUMMARY

United States Small Business Administration
Office of Advocacy
RS 172
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Lilliputian Strategies: Small Business Responses
to Big Business Entry
by Reginald Litz

1996. 68 p. University of Manitoba, Winnipeg, Manitoba, Canada
under contract no. SBA-8124-OA-94

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Purpose

The Office of Advocacy has a long-standing interest in understanding the role of small firms in the dynamic changes inherent in a competitive economy. Small firms have been losing market share across the varied industries that constitute the retail sector. The emergence of giant specialty retailers is a primary reason for the decline.

The purpose of this research is to examine how small local businesses cope when confronted with competition from a large, dominant, economically more efficient competitor. Specifically, this study examines how small independent hardware businesses respond to the challenge of one such giant retailer, Home Depot.

What is of interest is the extent to which small firms can create additional value for their customers, such that the economic efficiency of the large competitor is offset.


Scope and Methodology

Home Depot has grown to dominate the retail home improvement market in many local areas. To study the time-specific dynamics of competing against such a giant, four groups of retail hardware stores were chosen based on the presence and duration of Home Depot in specific local markets. Stores in Atlanta and Miami represent the long-term impact group (where Home Depot has been operating for 10 or more years); stores in Long Island (N.Y.), and San Diego represent the recent-impact group (where Home Depot has been operating for approximately five years); stores in Chicago represent the impending-impact group where Home Depot is currently entering the local retail market; and stores in Minneapolis-St. Paul and Kansas City represent the non-impacted group (where Home Depot is not yet operating).

Participating in a mail survey and telephone interview were 302 small independent retail hardware stores. Data from the U.S. Bureau of the Census were used to provide information on the specifics of the local trading area of each responding store.

The research design is limited by three factors: (1) there is a bias in favor of surviving firms (i.e., no efforts were made

to include the input of former small store owners or managers that had either ceased operations or gone into bankruptcy because of the competitive impact of one or more giant entrants), (2) the data is from a single source (i.e., store owner or manager), and (3) the project is quasi-longitudinal in nature and gives only an approximation of the temporal dimension of the changes made by the small firms.


Highlights



Ordering Information

The complete report is available from:

National Technical Information Service
U.S. Department of Commerce
5285 Port Royal Road
Springfield, VA 22161
(703) 487­4650
(703) 487­4639 (TDD)

Order Number: PB96 197256

Cost: A05/$21.50; A01/$10.00 Microf.
*Last Modified 6-11-01