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Is the Global Economy Becoming Too Dangerous for Small Businesses

In just the last 10 days the news has been blasted with the failures and crises of companies doing business abroad.

5 individuals in China were arrested on July 23rd for supplying various companies with expired or otherwise compromised meat. These individuals worked for Shanghai Husi Food Co. Ltd., which is owned by Chicago-based OSI Group. In addition, the customers of Shanghai Husi Food Co. Ltd included big named American brands like McDonalds, Kentucky Fried Chicken and Starbucks. According to Xinhua the quality control manager indicated that the practice was "under tacit approval of senior managers.” Assuming OSI's non-involvement in the practice, one questions how OSI failed to communicate company values to both senior managers and employees at this subsidiary. In addition, one wonders what checkpoints were in place to validate quality control report data. Both communicating company values and establishing and executing mechanisms to verify foreign operations are essential to small businesses doing business abroad.

As Malaysian Airlines was still trying to recover from what some say was the botched response to the disappearance of Flight MH-370, another one of its planes MH 17 was tragically downed over Ukraine July 17. Although the government owns 70% of the company, the approximately $80 million cost of these two incidents, could lead to the company's bankruptcy. When doing business abroad the need for insurance and a comprehensive risk management program becomes even greater. In fact, insurance started due to the need to insure for losses of ships traveling to European colonies. Just regarding these two incidents you have several coverages that may come into play including the property insurance of the planes, the loss of income due to the planes loss, crisis management expense, possible terrorism coverage, accident and travel insurance for those who purchased or have available through the credit cards, and life insurance.

If this week is any indication, businesses working abroad will also have to combat domestic "attacks." On July 24, President Obama called on Congress to close loopholes which he alleges allow businesses to use foreign partnerships to avoid taxes at home, even when their headquarters and main operations remain in the U.S. Treasury Secretary Jack Lew proposed that they decrease the corporate tax rate as an offset to closing the loopholes. With the US economy still struggling, business owners can expect that the generous grants and tax incentives available for companies function abroad will decrease as opportunities for those who stay and who do business in struggling states like Louisiana will expand.

Although small businesses have been able to escalate growth through international transactions, due consideration to the operational, risk, and tax concerns is warranted.

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