What Happens In Italy Doesn’t Matter

For some reflection on the year past and the year to come, with a nod to my friend and mentor, Norm Godding, who said it first….

What happens in Italy doesn’t matter to your small business in Whitehorse, Fort St. John or most other small towns in Canada.  You are what matters to your small business.  This assumes that you are not publicly traded and therefore the stock market may impact your personal investment portfolio, but not your business directly.  If you are reliant on the Italian (or Greek or Portuguese) consumers or governments, then you are an exception.

It’s true the economy is slow and you need to be better and stronger in order to succeed in the current economic climate, but most Canadian small businesses are not immediately impacted by what happens in Europe, or most other foreign economies for that matter.  They are, however, impacted by the global economy as a whole. It’s wise to be concerned about your long term viability, but resist responding to the short term fluctuations we have seen over the last few months.  I’m not a forecaster, I deal with what I know, and the following facts are what we all know, even if we are only minimally informed.

If you are reliant on gas prices, and many of you are, you’ll know that the cost of a litre is roughly equal to what it was this time last year.  In Canada, gas at the pump rose 13.5% in the 11 months ending November, before dropping again in December (StatsCan).  The price of a barrel of oil is closing out this year just over $100.  It opened the year just short of that and is closing far below the $127 high in April.  Whatever happens with oil prices, they can be attributed more to the Arab Spring and unrest in the Middle East, than anything happening in the troubled European economies.  Al Jazeera and other reputable news sources will tell you that significant changes in the Middle East should be measured in decades rather than months or years; in other words, expect that uncertainty to last, and, as always, plan for an increase in fuel costs.

Inflation in Canada was 2.9% in 2011, still below the 50 and 100 year Canadian averages (StatsCan).  Nonetheless, pricing, consumer confidence and consumer buying power are serious issues you need to consider.  Many producers I know have been telling me that since 2008, as their suppliers have continued to raise prices, the producers aren’t able to pass those price increases on to customers. Consequently they have had to consider other pricing and profitability strategies taking a long term view.  I don’t know what prices are doing in Italy, and I’m not especially concerned either.

Keep in mind that the Canadian economy grew about 2.3 per cent in 2011, about what was expected, and close to our long term average. This was faster than most major industrialized economies including the US, Europe and Brazil.  Despite this growth, the Canadian currency was the lowest in the G10.  Your response to this will depend on whether you are importing, exporting or doing business domestically.  In any case, we’ve seen worse and we know that business can still thrive in these conditions.

Unless you finance your business through operations, a rise in interest rates will hurt if you require significant financing.  Our interest rates over the last 20 years have averaged 6% and we are currently well below that.  It is well known that Canada’s banking system fared relatively well in the 2008 downturn, largely credited to the stricter regulations, which have not changed.

It’s true there is a great deal of uncertainty in global economies and the Euro-crisis could trigger a global recession; but wait, we are already experiencing a global recession.  So what can you do to weather any current or impending storm?

• If you are in the stock market, invest for the long term if you can, but don’t make business decisions based on daily fluctuations, it will make you dizzy and could signal weakness.
• Make strategic decisions based on global economic uncertainty, but don’t plan for failure or respond to micro-indicators.
• Diversify your customer base.  If Europe is an important customer for you, also look to Asian, South American or domestic markets for new customers; where one falters the other may expand.
• Make financing decisions assuming that interest rates will rise and credit will be harder to come by.  If the reality is different when you go to borrow, good planning will put you in a stronger position than you would have been otherwise.
• Determine a long term pricing strategy that anticipates an increase in supplier costs, but uses creative pricing methods such as bundling or volume and loyalty discounts to increase sales volume in order to improve profits rather than a straight across price increase.
• Stay the course with solid business practices, relying on your ability rather than too much worrying about external factors.

In short, don’t respond to market fluctuations, especially those in far away markets where you are not doing significant business.  If you are in to reading statistics, consider long term averages.  Plan for a weak economy, but be prepared to maintain or improve the strength of your business.  Keep your cool and avoid too much predicting, it’s the uncertainty that hurts the most.

In case I’ve been too cheeky or dismissive of Italy, let’s not forget what a wonderful place it is, and apparently it’s gay friendly too.  A plug for Tuscany:

 

Comments Off

You can follow any follow up comments to this entry through the RSS 2.0 feed.