The Price of Tea In China Does Matter for Small Business
My family--with three teenage kids and two working parents--is one of our local pizza shop's top customers. How do I know this? Did your family receive a thank-you gift basket from your local pizza shop last Christmas? I rest my case.
The owner of the shop, Dmitri, is a Greek immigrant about my age with a thick accent. This is a guy who, when other businesses around him were closing up due to the threat of a hurricane last summer, stayed resiliently open and scoffed: "No rain is going to shut down my business." He's gruff. He's hairy. His arms are the size of tree trunks. He barks orders out to the other, younger immigrants tending the ovens behind him, and they leap to attention at his voice. Dmitri is a survivor. He's a no-nonsense, small business owner who will never be rich, but will always turn a profit, and provide for his family. This is a guy who doesn't send many gift baskets at Christmas time.
Dmitri has a big screen TV in the restaurant that's always turned to a sporting event, usually soccer. But the other night he had on the third Presidential debate, which focused on foreign policy. And he was watching it closely. "You really care about this?" I asked him, as I paid for my late-night pizza. "Of course I do," he grunted into his cash register, and then looked up at me with a raised eyebrow and said: "You don't think what happens overseas affects my business? It does."
Really? Obama and Romney are discussing our relations with China, tensions in the Middle East, and economic problems in Europe. And this affects a little pizza shop in Pennsylvania? It does.
Dmitri is watching this foreign policy discussion because he operates in a region--just outside Philadelphia--where many nearby companies do business overseas and also employ tens of thousands of pizza eaters. Many academic institutions that rely on foreign students for tuition and research are located here too. In fact, all around us are local economies that are dependent on those companies that do significant business overseas. For example, not 20 miles from Dmitri is a large client of mine who employs a thousand people, manufactures industrial lighting systems, and makes more than 50% of his business from foreign sales. As growth has slowed in Europe and China, this company has had to cut back on its workforce, as well as its spending with local contractors and service firms. Drive around his office and you'll see the affects: strip malls with empty spaces, industrial parks with signs for rent. Where there were once three pizza shops nearby I recently counted only one. When people are out of work they buy less, and spend less eating out. Oftentimes they move to where there are jobs. Dmitri knows this. So he watches.
He knows his little pizza shop isn't insulated from world affairs. He's in a very competitive business with little flexibility. He can't increase his prices too far beyond the other pizza shops in the area--word gets around fast and he would easily lose customers. But how does he respond when the price of tomatoes skyrockets because of a "tomato war" with Mexico? How does he control overhead when his electric bill and the cost of pizza delivery goes up if Iran attacks Israel and the price of oil jumps? What happens if more manufacturing and jobs go to China or India and unemployment stays stubbornly high in the U.S.? And, even though Dmitri lives in an area known for its higher learning institutions, what happens to his customer base of professors and staffers from those nearby institutions when cutbacks are made due to slow growth from a slow economy caused by those same international pressures?
China affects pizza shops in Pennsylvania. So does Iran. So does Mexico. So does Spain. Even Dmitri's native country, Greece, impacts him from so far away. And no, it's not just his mother-in-law complaining to him over the phone about how hard her daughter has to work in his business and that "no Greek man ever would have his wife suffer through such a thing." Greece is in economic turmoil. Spain is in a budget crisis. Italy is wrestling with its own bond crisis. France's economy has slowed. The UK has been stuck in a recession that even the Olympics could not rescue. And Germany, the economic engine of Europe, is sputtering.
And back in Pennsylvania, Dmitri watches this and frets. He's no dummy. He sees the potential ripple effects of this economy. He knows that the U.S. can be drawn into Europe's problems. Our own Federal Reserve, already risking inflation after rounds of quantitative easing that already injected so much money in circulation, may be forced to even further extend itself to help stabilize Europe's financial system. Our biggest banks, so heavily invested with European partners, may be further drawn into those problems. Our largest companies, who count on European customers for a significant portion of revenue, may find themselves scrambling to make ends meet as demand ebbs. All of these problems affect Dmitri's business, too.
Because his customers work at those nearby companies. And with increasing pressure on their banks, these companies are pressured to limit their borrowing, and curtail growth. And as revenue from Europe and other parts of the world shrink, so does profit. And with shrinking profit comes layoffs. And layoffs mean fewer paying customers for Dmitri.
Of course, there are opportunities too. And I've written about some of them before. Difficulties in Europe have made many competitors weaker. This opens up opportunities for American companies to take away customers, make strategic buys with a stronger dollar, and snap up assets at cheaper prices than before. And even though it may seem like this is happening far away, the profit still comes home, gets reinvested, and helps American companies hire more people who then build homes, take vacations, and fund educations at the schools near Dmitri-- and who of course...buy pizza, but this time with extra pepperoni.
And it may force a pizza shop owner to do a little innovating too. Because if he's fortunate enough to be in an area with businesses that are benefiting from overseas operations then it won't be long before other entrepreneurs take notice and open their own pizza shops to compete with Dmitri. He's keeping a wary eye on this too. Because more competition means more marketing, more specials, more menu items, more services, more deals, more ideas to draw in those customers away from the new guy down the street. And if he succeeds, along with those neighboring businesses that are succeeding overseas, he may decide to expand a little himself. So instead of just earning a living, he can possibly make some serious money. And at the very least, get his mother-in-law off his back for a while.
Yes, the price of tea in China does matter. Even to the Greek pizza shop owner in Pennsylvania.
GENE MARKS | Columnist | Owner, Marks Group
Gene Marks is a columnist, author, and small-business owner. He oversees the Marks Group, a 10-person technology consultancy to small and medium-size businesses. A certified public accountant, Marks has also worked in the entrepreneurial services arm of KPMG. He writes for The New York Times, Forbes, and The Huffington Post.