What Do Local Business Leaders Need to Know About the National and Global Economy?

Everywhere I go to speak, local business leaders tell me they are not interested in GDP or the European debt crisis—they just want to know about business in their own town. Whether they sell insurance, cars or burgers, they serve local people. They want to know what’s going to happen in their home community.

However, everywhere I go I see communities tied to the national and global economy. It can be Des Moines, Nashville or Phoenix, but the story is the same: local business is driven by the big, huge issues that drive the national and global economy.

Drop me into a community at random and offer me one fact that will help me understand the local economy. In most cases, I’ll want to know how the national economy is going. The recent recession clobbered towns and cities all across America. We did not have a coincidence of thousands of local recession. We had one huge national recession that impacted most places.

Local Economy However, there are some communities that don’t follow the national business cycle, at least not always. For example, North Dakota had a small dip in the recession, but then increased employment dramatically while the national economy languished. However, don’t think that the state was immune to bigger forces. North Dakota gained from two large trends: increased global energy prices spurred exploration in the western part of the state, and high worldwide grain prices helped the state’s farmers.

The trick to understanding local business is knowing the drivers of the local economy and the risks facing the local economy. Those drivers and risks are usually external.

Every local economy has a concentration. That is, its local industries are more concentrated on a few sectors than is the national economy. Look around at the local businesses, and you may see somewhat more of one type of business. It may be an auto parts factory, a sawmill, or a bank call center. The smaller the city, the more impact a single plant will have on the economy. For a large diversified economy, such as Dallas, there may not be one or two industries on which to focus. For other communities, though, the concentration is obvious: Detroit and cars, Seattle and airplanes, Houston and oil. Smaller, rural communities may see a dependence on agriculture, forestry, or resorts.

The local business owner in a community with a high dependence on one or two sectors should understand what drives those sectors, and what risks the sectors face. The local business manager does not need to be an economist studying the local industries in detail, but he or she should know how national and global forces are impacting the local industries, and should especially understand the risks that the key local industries face. Those external forces will drive local business sales.

There is no community that is isolated from the outside economy, aside from some hunter-gathers in the Amazon rain forest and Andaman Islands. The key to understanding local business is to understand which aspects of the world economy are driving local activity.