Why mutual support is key to keeping businesses alive

Shaking hands with a new friend yields far greater profits than firing arms at an enemy.

The truth about having your own business is that sometimes, you'll feel like you're soaring through the months, and at other times, you feel like you're barely making even. As business owners, a majority of us on this side of the profit margin have seen the implementation of new taxes, rules and regulations, and the yo-yoing values of gold, currencies and so much more across sectors. We grow and hope to survive in the uncertain trepidations of a surging marketplace - but survival is not the goal. Of course, every entrepreneur is looking to thrive - and the best way to do this is through cooperation and collaborations.

Globally, we've seen the rise and fall of industry giants and SMEs alike - and it hits closer to home than one can imagine. Have you recently walked down the street and seen multiple restaurants and businesses set up and wind up within a single location? Statistically, 75 per cent of new businesses are said to fail within their first three years, and running out of working capital is one of the top reasons for this.

Before I get into the whole topic of support systems globally, why are businesses shutting faster than they are coming up in our region? Most entrepreneurs will tell you that the rules of the trade favour 'survival of the fittest'. On the surface, it sounds like those without a competitive edge will not be able to make it in the current market. It's actually false: more competitive business that routinely target and become targets of guerilla marketing see themselves lose credibility along with their credit before being forced to wind up or sell.

Imagine three friends, Raj the PR person, Jacob the printing supplier and Karen the yoga instructor have gotten together to launch Karen's new Yoga Training Centre. All is great - Jacob has handled the printing of her media kits, branded collateral and much more, Raj has taken great pains to get the new yoga centre on the media map and Karen has worked extensively to deliver the best, most innovative courses imaginable. Now imagine Karen's plight when a huge retainer bill gets taped to her door, on top of a pile of other bills most startups wage war with. She requires more time, or an installment system to pay Raj, who, in turn, needs to pay the supplier, Jacob.

This is the chain of remittance, with Raj having to bear the brunt not only of paying off Jacob but also of retrieving payment from Karen. Suppose Karen decides she cannot pay this month, and so Raj refuses to pay off Jacob? Many things can happen now - either Jacob decides to sue middle-man Raj for not paying his due amount, or Raj sues Karen for neglecting her retainer payment. Perhaps Karen does an extensive study of the work done by Raj and Jacob, find an error somewhere off-chance, and decides to press charges of libel or nullifies the contract on the basis of delivery. Nobody wins in such a case.

The cost of losing a supplier who gives heavily discounted rates will be a blow to Raj's business; losing Raj to this affair will cut off a major profit centre for Jacob; Karen will probably lose credibility and customers if her new firm is put under the duress of law suits and paperwork; while a suit will cost all three parties far more than they can afford. In this scenario, the cost of cooperating and pushing supplies on a credit basis is far less than the overall benefit of this cooperation, and far outweighs the cost of getting stuck in legal paperwork on the issue. This may just be a local business analogy - but it works in the grand scheme of things, as well.

Global cooperation is currently out of the window with the current China trade war in effect. Since 2008, China has been on a massive debt-fuelled binge as it is, with the debt on GDP increasing from 160 per cent to almost 300 per cent as of today. In such a case, despite a major collapse coming China's way through its own debt, the trade war with the United States only adds fuel to a blazing fire - net exports contributing to China's GDP has fallen from nine per cent in 2007 to a mere two per cent until just six months ago.

While the trade war doesn't reign havoc on the country, it is going to jostle the world trade market, and ultimately lead to a harking increase in prices of close to 70 per cent of goods and services consumed worldwide, which are mainly made in China. The UAE, too, will see the holes growing in the pockets of consumers if this continues.

We're seeing a global thrust of ideas across the table - India's Modi, the US' Trump, Korea's Kim Jong-un and His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, have demonstrated through their overseas meetings and synergies that shaking hands with a new friend yields far greater profits than firing arms at an enemy. In this state of affairs, there is a need for community conglomeration in business, and each cog of the giant wheel of the system must work with others in cooperation to gain strength in diversity with the onslaught of new, uncertain laws and regulations weighing down the global economy.

The writer is associate director, SMC Comex International DMCC. Views expressed are his own and do not reflect the newspaper's policy.