Local market

From CEOpedia | Management online

The market is a mechanism that coordinates the behavior of buyers and sellers participating in the process of buying and selling goods and services. In other words, a market is a place where supply and demand meet. The market can be analyzed from many angles. One of the criteria for distinguishing the market is the criterion according to geographical coverage, from which one can distinguish the local market, global market, domestic market, and the international market.

The local market is limited to a small territory and has certain restrictions such as limited reach, taking care of direct contacts with customers and suppliers, products and services should be tailored to the needs of society, precise selection of advertising to reach as many people as possible.

According to Mr. Luc Laeven, the development of the local market is affected by the sustainment of specific policy on the market. It's mainly about privatization, liberalism or safer private property rights (Mr. Luc Laeven, 2014, p. 14).

Factors positively influencing the development of local markets

"When using the sum of the market capitalization of equity, private bonds, and public bonds divided by GDP as proxy for a country’s local market development, we find that private enforcement of securities laws, shareholder rights and the enforcement of debt contracts continue to be positively associated with local market development even after controlling for the level of economic development and average inflation rate in the country. Moreover, we find that the size of the domestic banking system continues to be positively associated with local market development after controlling for per capita income and inflation. […] These findings suggest that legal and institutional environment exerts an independent influence on local market development over above the macroeconomic conditioned in the country." (Mr. Luc Laeven, 2014, p. 14).

Factors contributing to the weak position of local markets

Among the factors affecting the weakening of the position of local markets we distinguish (the United States. Department of Agriculture. Production and Marketing Administration. Cotton Branch p. 72 ):

  1. "The inefficient organization of numerous local markets
  2. Indifference or lack of understanding on the part of many growers with respect to marketing
  3. Opposition by some marketing agencies with regard to changes in market organization and procedure"

The state of development

"Three key dimensions of market development (Mr. Mangal Goswami, Mr. Sunil Sharma, 2011, p. 13) :

  1. The hurdles confronting players and institutions that are or could be borrowers an lenders
  2. The issues faced by current and potential liquidity providers, and
  3. The presence or absence of supportive government policies and regulations"

Challenges of building local markets

As per Mr. Luc Laeven, one can distinguish the main challenges related to building local markets, i.e. time and a sustained and broad political consensus (Mr. Luc Laeven, 2014, p. 12). Significant impact on the development of the local market by dealing with political risk and gaining investor confidence may be the fact that the maintenance of market policies, such as privatization and liberalization programs, sets the main test of political engagement for safer private property rights. The introduction of market policies are often reversed or initially unreliable (Mr. Luc Laeven, 2014, p. 12).

Examples of Local market

  • Local farmers’ markets: Farmers’ markets are a type of local market where local farmers come together to sell their produce directly to consumers. These markets are usually found in public spaces, such as parks or town squares. Farmers’ markets can be a great way to buy fresh, locally grown produce and support the local economy.
  • Street markets: Street markets are a type of local market where vendors come together to sell a variety of goods and services. Street markets are usually found in busy urban areas and can be a great way to find unique and affordable items.
  • Flea markets: Flea markets are a type of local market where vendors come together to sell a variety of used and secondhand goods. Flea markets are often held outdoors and can be a great way to find unique and one-of-a-kind items.
  • Craft fairs: Craft fairs are a type of local market where artisans and craftspeople come together to sell their handmade goods. Craft fairs are a great way to buy unique items and support local artisans.

Advantages of Local market

One of the advantages of local markets is that they can provide a more personal and intimate shopping experience. Some of the other advantages include:

  • Local markets are more convenient for customers, since they are close to their homes and don’t require long trips to the store.
  • Local markets often have a better understanding of the needs of the local community, which can lead to better service.
  • Local markets can provide a more personalised shopping experience, as customers can interact directly with store owners and staff.
  • Local markets can provide better prices for local customers, since they don’t have to pay for large shipping costs associated with buying from large, international retailers.
  • Local markets can promote small businesses, which can help to create jobs and stimulate the local economy.

Limitations of Local market

  • Local markets are limited in size and scope, meaning the number of participants is usually lower than in the global market. This means that local markets often lack the liquidity and depth of the global market, making it more difficult for businesses to get the best prices and find buyers or sellers for their products.
  • Local markets are more vulnerable to external shocks, especially those that affect the wider economy. For example, a recession in the global economy will have a greater impact on a local market than it would on the global market.
  • Local markets may be subject to greater volatility, as the smaller number of participants makes it easier for prices and demand to be affected by sudden changes in market conditions.
  • Local markets may have fewer opportunities for diversification, as there are fewer products and services available in smaller markets. This means businesses may be more exposed to risk if they are dependent on a particular product or service.
  • Local markets may be subject to greater regulation than the global market, which can limit the opportunities for businesses to participate in the market.
  • Local markets may contain fewer sophisticated investors, who may be less willing to take on risk than investors in the global market. This could limit the potential returns that businesses can generate.

Other approaches related to Local market

In addition to the geographical coverage criterion, there are several other approaches to analyzing the local market. These include:

  • The size of the market: This measures the total number of buyers and sellers in the local market. It is an important factor in determining the competitiveness of the market.
  • The level of competition: This measures the degree of rivalry among buyers and sellers in the market. It is important for determining the prices of goods and services.
  • The level of product differentiation: This measures the degree to which products are differentiated from one another in the market. Differentiated products may have different price points and attract different types of customers.
  • The level of knowledge: This measures the level of knowledge that buyers and sellers possess in the local market. It is important in determining the type of services that are offered in the market.

In summary, there are several approaches to analyzing the local market, such as the size of the market, the level of competition, the level of product differentiation, and the level of knowledge. All of these criteria are important when assessing the competitiveness of a market.


Local market — recommended articles
Economic factor — Domestic market — Factors affecting business — Commercial sector — Consumer sovereignty — Money — Factors affecting demand — Opportunities and threats — Macro environment analysis

References

Author: Łukasz Gil

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