Demographic change is challenging for small firms
Although the modern business world is globalized, many small firms still sell their products and services regionally and nationally. How can these companies sustain their business when their sales markets change due to demographic challenges?
– Demographic change is a big challenge for firms across Europe, says Birgit Leick, Associate Professor in Business Economics, at Ostfold University College. Photoillustration: Colourbox.com.
And how can small firms sustain their business when there will be less total consumers, less young consumers, and more elderly consumers for the goods and services that companies produce? This is more problematic for small firms than sudden shifts in the demand, finds Birgit Leick, Associate Professor in Business Economics, at Ostfold University College. She has recently described this in an article published in the International Journal of Globalisation and Small Business.
When market changes occur slowly and cannot be fully anticipated by a company, the entrepreneur should invest early enough to prevent a product or service from becoming obsolete in the future. But will a small firm really respond to a market trend with the tipping point to arrive in maybe 10 or 20 years’ time?
Between 2011 and 2015, Birgit surveyed around 100 small firms from Germany to explore whether small firms really steer through tough times because of demographic challenges.
- Most firms either adapt their strategies to achieve leadership positions in their established markets or build up new market niches. For example, they focus on age-specific products and services for elderly consumers or emerging niches in the market with younger consumers.
- Market leadership is often embedded in regional networking, for example, with local suppliers (vertical supply-chain). It helps small firms to build a competitive brand in an overall shrinking market. Business networking with competitors (horizontal cooperation) is used to exit specific market segments that are shrinking and focus on the profitable niches. Through the local network, small firms can keep their range of products complete.
- As an overall result, firms mix different strategies to stay competitive in a changing market and adapt smart to demographic challenges that affect their regional sales.
- Non-strategic behaviour is another strategy because market changes are too complex and remote for some small firms with short-term planning horizons.
An interesting example is a health and fitness club in a shrinking city that started as a gym for everyone, but soon thereafter focused on customers aged 40+. The club now has only few machines but offers more courses. The company moved to a building with large and lightly coloured rooms that allow flexible arrangements and the integration of new trends.
The strategy of the club is: attract new customers in the growing market segment of the age group 40+, maintain long-term clients through loyalty schemes, intelligent marketing and customization.
The project was part of Birgits post-doctoral dissertation (habilitation thesis) in Germany.
– Demographic change is a big challenge for firms across Europe. We can see that young people leave small towns for big cities when they want to study or find a job. Elderly and immobile persons remain. I was fascinated by this trend – who will buy the products and services of local companies when people leave the place? Companies actually need to re-invent themselves to stay in the market. But in practice, I observed that many companies just continue with business-as-usual and ignore the changes.
Companies can learn from this study that their strategy to cope with long-term trends such as demographic challenges should not be based on improvisation only, but some long-term planning is necessary to develop innovative solutions to new and emerging needs of customers. Local networking along the supply-chain, but also among competitors in a market segment can be useful to offer a complete range of products.
Link to the publications:
- Journal article “Steering through tough times? Insights into strategic change processes of small firms in the context of demographic challenges“
- Forthcoming book chapter “Entrepreneurship and ageing: Exploring an economic geography perspective“ (Handbook of Research on Entrepreneurship and Ageing, Forthcoming in July 2019)
Faculty of Business, Languages and Social Sciences