Waiting to exhale: small business holds its breath amid Asia's financial crisis

Entrepreneur, April, 1998 by Charlotte Mulhern

First, some background: The meltdown dates back to July, occurring on the heels of the Thailand bank fiasco, caused by an unwise lending spree that lasted several years. In a much-expected domino effect, the economies of Indonesia, Malaysia, the Philippines and South Korea soon mirrored Thailand's economy collapse. Then the International Monetary Fund stepped in, pledging to lend, in installments, $35 billion to some of the depressed nations. So now the world pauses, waiting for word on the long-term consequences of Asia's dismal financial condition.

At press time, the fallout had yet to trickle down to small business. "I haven't seen any credible reports [from] the statistical offices yet," says Joseph Hayes, executive director of the Washington, DC-based U.S. ASEAN (Association of Southeast Asian Nations) Business Council. "Probably by the end of the first quarter of '98, you'll begin to see on which side of the fence this is going to fall."

For now, experts predict the backlash will strike at least one segment of small business very hard: suppliers to large corporations. Consider Boeing: Not only is the billion-dollar corporation the largest export manufacturer in the United States, but its top export market is Asia. In theory, if Asian buyers stop buying aircraft, Boeing will stop buying from small suppliers many of the nuts and bolts that go into building the airplanes. "It's the smaller suppliers at the bottom of the food chain who eventually will carry the brunt of the load," says Hayes.

And if you're in the agricultural business, beware. Because Asia - whose regional currencies are now worth as much as 40 percent less than before - is the largest consumer of U.S. agricultural exports in the world, small-business exporters of agricultural goods are left with two options: Either raise the prices of products sold in Asia to reflect the exchange rate, or lower prices in a competitive motion and absorb the losses. But consider yourself warned: "If those two things can't accommodate the exchange rate fluctuation, the sale just doesn't take place," Hayes explains.

At the very least, experts predict an overall slowdown in the U.S. economy. On the plus side, however, Asian imports will likely drop in price. "In chaos, there's opportunity," adds Hayes. "People may be able to find new opportunities [as a result of] these shifts in the market."