This makes a great deal of sense, a lot of my searches are for local issues/businesses. I've always thought that on one hand the Internet opens up global markets, but eventually you will want to deal with someone who you can speak with locally [depending on the type of business]. If I were planning to build a house I would definitely search for local builders and be disappointed if SERPS returned a whole heap of multinationals.
ephricon, maybe Google is following market trends. I read this week somewhere, that local searching (searching for local companies) accounted for a huge % of searches.
I think the figure quoted was either 60% or 80%, cant remember which.
A lot of small business shouldn't try to compete with the large global companies, they just need to get the jump on the local competition, and if the likes of Google can realize this they will always have a loyal following.