Hi all! I am running a small business in Armenia. I am sure, that I have a lot of colleagues around the Globe. Let’s help each other by sharing our thoughts and experince…
Financial strategy is not less important than the above mentioned managerial one. Moreover, finance is an important and invaluable component of business management. Without an appropriate financial management it is quite difficult to imagine the final success of an entrepreneurship. Within this kind of strategy I would like to underscore the next essential elements: cash flows, prices, financial risks and taxes.
Cash flows. Proper and correct run of the cash flows is a very important element of the financial management. In this case I want to pick out two aspects: ratios assets to debts and cash inflow to outflow.
It is a huge necessity to form debts or accounts payable of any business correctly. As long-term practice in the different fields of business (bank, trade etc.) shows, misbalance in the ratio of assets to debts leads to negative consequences the worst of which can be default and bankruptcy. In order to avoid this prospect it is a good idea to have accounts payable no more than one third times of the sum of the assets.
The next important problem related to business profits. In small business it is essential to provide equilibrium between financial risks and reasonable profits.
Dealing with financial risks. This group includes risks related with exchange rates fluctuations, returns of accounts receivable and overdrafts or short-term loans. All of these three are important tools for profits gain in trade, bank field etc. They demand accurate and cautious approach. They are very dangerous tools in the profit gaining.
Pricing. Prices are also important elements of financial strategy. Speaking about prices, obedience to authority parallels obedience to market authority. In this field it is possible to speak about some rules of pricing:
a) To successfully compete in the market area it is necessary to form price according to real market conditions,
b) Different kinds of goods demand different value added
c) Prices are exposed to the seasonal variations
d) There are specialties – some essential commodities (bakery, milk, cheese, butter, child’s goods etc) which can not be the subjects for gaining super profits.
Taxes. From this point of view I want to underscore the following. Taxes must be paid either early or late. In this case why is it necessary to hesitate? Many Armenian businessmen hesitate to pay taxes and, later, have difficulties with “law”.
And, as continuation, there is another problem related with tax payment. From my own experience, it is much better to do periodic installments than one-shot payment. It is rational business approach.
Last but not the least I want to speak about the third essential component of a business success. This is marketing strategy. It has its own significance in the game of profits gaining. Without good and competent marketing research today it is difficult to imagine a final success in both big and small businesses.
What are those indispensable elements in the small business marketing strategy in nowadays Armenia? In my opinion this strategy includes two important elements. A businessperson who represents the Armenian small business should be perfectly aware of:
a) locations of wholesale markets and warehouses,
b) wholesale prices,
c) exchange rates,
d) seasonal stocks.
He should try to be aware about:
a) prospective shortages of goods,
b) intentions of business competitors,
c) intentions of authorities.
Like any well-developed current state which has its capable constitution or, at least, time-proved good laws, the successful business could not be imagined without a few essential rules which, in my opinion, are the prerequisite of the business success. Which are these rules?
Rule N1: “Everybody’s business is nobody’s business!” As long-time practice shows, a percentile of the small businesses (especially family businesses) failures in Armenia is sufficiently high. The above mentioned has a lot of causes but, from my point of view, it usually happens because of inappropriate, moreover, wrong management: unregulated cash outflows from business, absence of the clear hierarchical structure of business and strategic plans of business development etc. Indeed, it is quite impossible to expect success of that business which has, e.g., two-three “co-managers” (which is peculiar to Armenian family and small businesses) instead of one, a few unskilled “accountants” instead of well-educated and skilled one, no prospective plans of expansion etc. Success of a business depends on many factors and one of the most important of them is a proper management, namely, correct distribution of the staff responsibilities. This is a very important aspect of the business administration which can not be disregarded.
Rule N2: “Advertisement – engine of trade!” Many of our businessmen pay little attention to the advertisement considering the latter as an unnecessary thing. Maybe this kind of approach has its roots in the soviet past: within the previous soviet planed economy (which many of economists called “economy of total deficit”) advertisement had no place and no importance because of absence of the market infrastructure. In reality of market economy, advertisement is a very important component of business success. E.g., in commerce to have saleable goods and popular articles does not mean to have automatically good sales. It is necessary “to show goods to full advantage”, to convince a client to make a purchase etc. Many people have experienced the situations when, at first, shop assistants persuaded them to buy goods the necessity of which, later, was quite impossible to explain. The above mentioned examples clearly show the importance of advertisement. Hence, “Advertisement is the engine of trade!” Moreover, a good seller definitely should also be a good “advertising agent”.
Rule N3: “Reasonable client is always right!” Like the idea of advertisement a Client should also be in the centre of permanent attention and correct “handling” of the clientele is an invaluable ability of a businessperson. And the above mentioned ability is important not only in commerce but also in banking, industry and so on. However, there is one aspect related to this topic. There is a well-known motto that “Client is always right!” From my own entrepreneurial experience I can say that this slogan is not complete and should be modified! It is necessary to maintain correct balance between business interests and, I would call it, “business dignity”: not always the demands of clientele are reasonable. Frequently, businesspersons have to deal with different more or less justified consumer preferences.
b. STYLE. Leadership: two sides of the coin
Milgram, S. writes in his article “The Perils of Obedience” (Milgram, Stanly (1974). The Perils of Obedience. In Behrens, L. & Rosen, L. J. (Eds.), Writing and reading across the curriculum (p.360). New York: Longman) “…Obedience is as basic an element in the structure of social life as one can point to. Some system of authority is requirement of all communal living, and it is only the person dwelling in isolation who is not forced to respond, with defiance or submission, to the commands of others…”
Indeed, obedience to authority is the specific area of human interrelationships and business area proves veracity of the above mentioned idea. Moreover, I can not imagine business without obedience to authority: be it obedience to market authority, or power authority, or manager authority, or business interests authority. As I mentioned earlier, it is impossible to run business effectively without proper management, which includes, as on of its component, obedience to manager’s authority, the authority of leadership.
This authority is a coin with two sides. The first side is: “Business is business” and the second side is: “Work place is a desirable place for employees”.
“Business is business”. It is a good idea that a good and skilled manager first of all should be an authority for the staff. His interests are the interests of business and vice versa. The traits of a good manager are the following:
“Work place is a desirable place for employees”. But there is the other side of leadership coin. Only administrative tools can not provide the success of a business. It is necessary to establish healthy stimulating climate in the working staff. “Work place is a desirable place for employees” means:
a) appreciation of employees’ well-done work (bonus payment etc.)
b) kindness (remembering birthdays, holiday’s presents and flowers, parties etc.)
… *** As we know, when SRP (seller reservation price) is higher than BRP (buyer reservation price) there is no way to agreement. Unfortunately, both sides established such kind of RP-s that there was no word about reasonable and rational agreement. There was no word about any agreement at all! Reservation prices of both of the involved in the conflict sides were too high to reach any agreement. Thus, the most important problem of this conflict was the fact that conflicting sides were unwilling or unable (who knows, or now it would be reasonable to say “Who cares?”) to establish reasonable reservation prices to reach to peaceful agreement. Otherwise, now we would have entirely different situation in South Caucasus region…
*** Frankly speaking, this political and military drama which involved tens of thousands of usual people does not depend on structural elements: the stakes in this game were too high and technical details could change little if any. May be instead of Mr. X and Mrs. Y Mr. Z and Mrs. Q were able to reach more preferable conditions in negotiating process. May be some remarks not said by Russian or Georgian officials could have positive influence on the dispute… God knows…
*** Of course, the whole this drama consists of important moral and ethical issues, and the most important of them is the humanitarian catastrophe of immediate inhabitants of this particular region: Georgians and Ossetians. No one pathetical word about defense of Motherland, economic interests, or something else can reasonably justify child’s tears or dead! No one politician or military person can be justified at all! But unfortunately, when we deal with any kind of political matters there is no space for moral and ethics. In my regret, it was proved by past history of the humanity.
Just one hot August week of 2008 entirely changed political, economical and military state of the things in South Caucasus region. Informally speaking, Russia punished Georgia using her economic, political and military potential clearly understanding all “pro” and “contras” of this action. There took place what should take place in policy: when negotiating sides due to one or another cause cannot reach agreement peacefully the only remaining thing to happen is the War. We can discuss long about fundamental interests, BATNA’s, ZOPA’s, bottom lines, etc. of the involved parties, trying to understand what went wrong, possible solutions, etc. Of course we can also try to find place for moral and ethical issues at the place where there is no space for such kind of terms. But there is one and only thing which we never can repair: to rescue people who died during this war. All the remaining assignments are absolutely unimportant… -0-
…Let’s start from Russia. From my point of view, at this point of time the fundamental interests of Russia in this conflict (moreover, I would say not only in this conflict but rather in this post Soviet area) can be understood only by taking into deep considerations the most important political and economical issues: the existence of friendly and loyal regime in Tbilisi (in contrast to nowadays regime of Mr. Sahakashvili), which in turn can guarantees the impossibility of NATO’s (i.e., US & K) expansion into South Caucasus (political), and excluding of any energetic oil and/or natural gas transportation systems existence which are not under Russian control or competes with existing Russian ones. The above mentioned interests were (and are) also bottom line for Russia in South Caucasus, and particularly, in Georgia. This Russian list of interests cannot be cut off. What about Russian BATNA? In my opinion, it was exact the same thing which appeared to be reality after the Second War: dividing of Georgia into small and pro-Russian or, at least, loyal to Moscow “independent states” (Abkhazia and SO are few of them), establishing Russian military, political and economic control over these regions, and, in not so distant future, taking over energetic transportation systems. This is a whole story!
Now, let’s examine and understand the Georgian position. Being taken over by the Russian Empire in 1795 and regaining his independence after more than 2 centuries Georgia stands in front of difficult dilemma. To guarantee (and guarantee continuously) independence of the Georgian State and its territorial integrity from not loyal and unfriendly big neighbor (from the Georgian point of view) it is necessary to choose the Western direction cooperating and integrating with EU, NATO and other Western political and economical institutions. But simultaneously Georgia should think about those Georgians (about 2 millions) who live, work, doing business, etc. in Russia which in turn hugely contributes to the Georgian economy. Also it should be taken into serious consideration that the only supplier of natural gas for Georgia is Russia! These are the most fundamental interests of Georgia which unfortunately contradicted with each other at least for last two decades. The bottom line for Georgia is unclear: not to lose the Russian market, or at any price takes off to the West, or to maintain territorial integrity? What else? It seems to be that economic partnership with Russia should be the most important from the fundamental interests of Georgia. Being in good relations with Moscow could solve many of Georgian problems including territorial disputes. What about Georgian BATNA? In my opinion the best for Georgia would be excluding Russia from the game by attracting separatist regions into, e.g., confederative state (like Switzerland) were all the parties have equal rights and obligations. Confederation of Georgia, Abkhazia and South Ossetia could be one of the best ways for solution. Or do radically other thing: recognize (without any military action) their independence and move on to the West. Why not? (to be continued)
 – From my point of view, the fundamental interest of all of the South Caucasus countries including Armenia, Azerbaijan and Georgia, is strongly not to be involved in any kind of controversies and disputes of the World Superpowers, simultaneously to maintain a good partnership relations with them and to transform this region into the Island of financial and economic prosperity. – A. H.
In this case the main ethical dilemma is how justified is the World Bank’s (WB) and IFC’s Board of Directors approval of funding the Chad-Cameroon petroleum pipeline project taking into consideration some doubts (which further became the reality) that the revenues from the project could be used by Chad’s government to fund further oppression and weapons purchase. Regardless how justified is or is not the project I want to draw intensive attention of the reader to the ethical side of the issue.
At one side we face with Chad’s government (particularly, General Idriss Deby) and its policy which brought this African country to the top down of the list of world countries (poverty, civil war, social unrest, etc.). It is obvious that every new coming cent of revenues Deby undoubtedly will use for purchase new arms and weapons and against his political enemies and Chadian rebels. At the other side we have the World financial circles (WB, IFC, private companies, etc) very interested in this project which promises to fully refund huge construction costs. Between these two sides is a hostage – Chad’s population which is trying to escape from Deby and appealing to the morality and ethics of world influential countries and organizations.
What are our alternatives? Alternative No1: to froze Chad’s governmental accounts at the banks which will decrease the possibility of Ndjamena’s political maneuvers. After this, negotiate with Deby trying to get full (or at least influential) control over Chad’s part of revenues coming from the project. Alternative No2: (the most difficult and actually impossible): to neutralize Ndjamena’s influence by bringing pipeline under international peacekeeping control, formally removing Chad from the list of project’s stockholders, bringing future fuel revenues directly to Chadian population through international humanitarian organizations.
I think that the most real scenario is the first one: World Bank, IFC, etc. should freeze Chad’s governmental accounts (so-called escrow account) at the banks. This action at once will hugely restrict a field of Ndjamena’s political maneuvers. After this step it would be reasonable to sharply and ultimately negotiate with General Deby and his administration trying to get full (or at least influential) control over their part of revenues coming from the project.
What are the advantages of this?
1. Cutting financial flows to Ndjamena’s regime will positively affect to political situation in the Chad: “no money – no weapons – no war against rebels – no (or at least decrease in level of) social and political unrest”.
2. In this new situation Deby will be more apt to constructively negotiate with donors and financial organizations: “no money – short tongue”.
3. Getting influential control over disputed revenues will allow WB, IFC, etc. to use them more productively, particularly obligating Chad’s officials to use this money on behalf and for the sake of Chadian population and strictly prohibit to use these financial flows in military context.
In the case of Enron collapse in my opinion it is very difficult in a few words to describe the ethical dilemma we face with, because it is obviously that Enron by itself without any exception is the big criminal and ethical outstanding case and not the dilemma.
As we can see in the Enron Collapse case there is highly competitive business environment in the energy production and trading industry. And what is more important that Enron was in list of top ten companies forming this sphere.
In this case we are provided for the rich financial, accounting and statistical data related to Enron’s activity, including detailed dirty schemes for money laundry and “drawing” the desired financial figures. Despite the fact that the above mentioned schemes of gray operations and manipulations with so-called SPE (Special Purpose Entities) should be necessarily included in the financial, economics, and law textbooks as an outrageous examples of violation of law and societal ethics, the detailed analysis of these figures does not make a sense because I have no intention to estimate the financial and accounting standing of Enron. Rather Enron case is highly related to ethical and moral aspects. Of course, we can discuss to what extent Enron passed border between legal and illegal matters, what kind of justifications had its CEO’s, CFO’s, etc., but the problem exists in another sphere: providing that US business arena has a strong corporate culture supported by written and unwritten codes of ethics, how all of this story could have happened? Remember please that Enron like many other US corporations had its own code of ethics at which surely there were prohibitions for various activities which Enron’s officials allowed to took place. How healthy is the society in which Enron’s officials played their game? Discussing the strengths and weaknesses of Enron we can conclude that the former was dirty schemes and suspicious operations and trading, and the latter was the remaining part of this company. Top management of Enron had only one goal or value: to make money following the way of the best traditions of Machiavelli (“Target justifies the instruments used!”), forgetting at the same time about social responsibility and moral issues. It would be much better for all of them (I mean the top management of Enron) from time to time had a look at US Treasury note bill like, e.g., $US1 where is written: “IN GOD WE TRUST”…
In my opinion, the most important benefit of preparing as a team was that every time we tried to understand and weight all pros and contras of the future negotiating strategy depending on goals of our “country”. Particularly, we desired to figure out answers to the next questions: What is taking place? What point(s) should we consider as a most important one(s)? What is our BATNA, Zone of possible agreement, Bottom line? Not the lesser important was to combine correctly our different interestsfor sake of the “whole country”, i.e., our team. The most important from the challenges was to find common denominator for combined efforts of us as a different persons, not the friends in order to be consistent and logical in future negotiation process.
For example, at Negotiation class, my role as an Assistant Secretary of Defense has strongly influenced my views on goals and strategy: as a “military” man I should have considered all possible military aspects of the issue: size of our army, as well as enemy’s, weapons resources, location and possible maneuvers of our army, winning strategies, etc. Shortly, I was responsible for finding different military solutions applicable in the possible negative developments in future.
Our team has not succeeded to discuss deeply a process of future negotiations due to the time shortage: only a little.
Frankly speaking, during the actual negotiation process our team had no internal differences. Rather we did not succeed to professionally conduct negotiating process appropriate to diplomatic rules, codes, and procedures. This was the weakest side of us!
In my opinion, we were rather position bargainers than interest-based ones. The reason for this was the fact that none of us was able to understand the real intentions and interests of “Enemy” delegation and we had some distrust to them: whether or not they cheat us?
If we deal with such kind of teams and negotiating process the only proper strategy is positional bargaining: to have a deal basing on interest-based approach the first precondition should be mutual trust!
As usually in human history, the last thing to do in case of failing negotiations is the war. It is highly undesirable thing but it is also a path for solution. It happened not once in the past. It happened in our case: it stipulated us to be more flexible and “efficient” negotiators! When you lose the land and people, in other words you are the loser, you have to be yielding!
As I mentioned earlier, of course war created power imbalance during negotiations. And in this situation we were forced to “leave” some positions and interests. We have to hope on enemy’s kindness!
Frankly speaking, we did the most possible in that situation taking into considerations our tools (maps and instructions), preparation, experience and personal characteristics. I do not thing that we missed something at personal or intra-group level. Rather we had had problems at the team level: coordination, patience, and ability to listen to each other as well as the opposing team members.
As I said earlier, in this simulation I was an Assistant Secretary of Defense of “Our”country and when you are enforced to sign agreement under the pressure of military failure (especially when you are a top military person) it is not a thing that one might dream of.
I think that both of teams were responsible for this outcome. Positional bargaining which took place always left something (at least) on the table. The resulting added value is always much smaller than it could be otherwise (at the interest based approach). That is way in this particular situation I do not want to speak about value(s) left on the table by us: it does not matter, it is not a root of the problem.
*** July 7, 2008… People around the World are looking forward to see opening of the Beijing Summer Olympic Games which according to Chinese officials, experts and journalists were promising to become an outstanding event in the recent Olympic history…
Suddenly, like the lightning in the summer serene sky, under “Breaking News” World news agencies informed that Georgian government started special military operation (under title “Clear Field”) intended to regain control of the official Tbilisi over the separatist region of Tckhinvali or more famous as South Ossetia… As it was to be expected, The Russian Bear answered to this action immediately, sharply, strongly, disproportionally, etc. The completion of this story was very rueful for immediate neighbor of Armenia – two new “independent” (of course, in Russian official interpretation) states appeared on the political map of South Caucasus: Republic of Abkhazia and Republic of South Ossetia. This is the entire story in brief. The remaining details of the movie, like strong and deep objections from Washington’s White House, London’s Dawning Street, Brussels, and the likes; US Navy in the Black Sea region; Polish and Baltic speculations about possible economic sanctions of EU against Russia; etc. are not so important… Moreover, they are laughable. What was done is done! And which is much more important, is done by BOTH Georgia and Russia! At least, at first glance it seems to be so… From the military point of view, Russia defeated Georgia absolutely and entirely: really Mr. Mikheil Sahakashvili had expected to reach other result than this one?
Here I will try to asses all the parties involved by searching their fundamental interests as the source of potential value-creating trades and their BATNA’s (non-agreement alternatives), identify possible barriers to agreement as well as structural elements that might be advantageously rearranged, and reveal important moral and ethical issues as well.
*** As we can conclude at first glance, leaving formal issues, two major players were involved in this game directly: Tbilisi and Moscow. But to start talking about involved parties it is necessary to say a few words related to not so distant past. After collapse of the Soviet Union in 1991 and declared independence of Georgia constituent parts of the former Soviet Socialist Republic of Georgia, Abkhazian Autonomous Republic and South-Ossetian Autonomous Province (both supported by Mr. Yeltcin’s Moscow), declared their own independence from independent Georgia. Two separatist regions had always have problems with central government of Tbilisi: the issue has deep objective and subjective historical, religious, economic, political, and ethnic roots researching of which is not my purpose now (or at least here). That days Georgian President Mr. Zviad Gamsakhurdia answered to this act of Sukhumi and Tckhinvali by military aggression intended to reestablish political and economic control over Abkhazia/South Ossetia. As a result of, let’s call it, First War, Georgia actually lost control over these regions and was defeated militarily. After this event, under UN mandate Russia acted for 16 years as a peacekeeper between separatists and Tbilisi in the above mentioned problematic regions and formally was a mediator in a peace talks between involved in conflict parties avoiding to act as an immediate participant but actually “sponsoring” Abkhazia and South Ossetia. It has been taking place until “hot” week of August 7-14 or Second War when Tbilisi, having been strongly supported by US and some members of EU (not immediate participants of this drama), again tried militarily to regain control over South Ossetia. Russia was unable to maintain his “neutrality”. Why?
To answer to this question let’s define fundamental interests, and bottom lines and BATNA’s of this game players. /to be continued/
Here I want to ask a very important question. Can legislation be supportive especially for small business owners in transitional societies? Again, I have no intention at all to write in an academic manner… Quite the contrary, I want to involve my visitors to this discussion leaving formal and routine sides of the Academic writing to academicians. However, is it really possible?
As I have mentioned earlier, I am a ten-year-old entrepreneur in an area of small business. During these years Armenia has had 6 Prime Ministers: Armen Darbinyan, Vazgen Sargsyan, Aram Sargsyan, Andranik Margaryan, Serge Sargsyan, and, finally, acting now Tigran Sargsyan. There happened many things in these years: the blood October of 1999, establishment of Northern Avenue and construction boom, official «years of stability» and, again, blood event – first post-electoral days of March 2008. There were passed so many National Assembly Acts and Governmental Regulations. Almost every day Municipality of Yerevan decides something about somebody, and by the way it is not necessary to read carefully that acts: they all are the same. May be there changes only titles and in addition persons in care of whom these acts were passed! Nothing else at all!
It is absolutely impossible even to try to read these documents. I strongly hate official and bureaucratic readings. Moreover, I am sure that huge quantity of businessmen supportively shares my point of view. You start read the sentence (a three-four rows long in average) and when you come to the finish you definitely do not remember the main idea of the starting point. Am I wrong? Have you ever experienced such kind of feelings? Or is this specific only to Armenia and Eastern Europe?
At last I want to make one good remark. When Armen Darbinyan was the head of the Armenian Government small business was experiencing «gold era»: we did not know what means VAT (Value Added Tax) or Simplified Tax. There was only one legal tax: Fixed Payment for Sole Proprietorships. I can and want to assure you: that time was really good!
Here I want to speak about ethics and moral issues in business. This supposed not to be an academic writing… Rather, simple human approach to some issues, which at first glance cannot be combined at all. However, is not it really possible?
As I said earlier in my blog, I have about ten-year-old entrepreneurial experience in field of running a small business. Moreover, I run my business in modern post-soviet Armenia with her transitional economy conditions. Everything is transitional: human relations, personal behavior, authorities, power, legislation, economy, neighbors, etc.
From the academic point of view at running a small business (and generally, business) you should count for your sales or revenue figures, subtract from them operational and other types of costs to derive to gross profit and, further, EBIT and net income… It would be very good to become reality. The harsh and stupid reality is something different from our drawn academic picture.
In transitional economy, you must count for everything and first of all human relations. Anybody can oppose to me saying that everywhere around the Globe you should count for it. Of course, it is true. But I want to underline specific transitional conditions when there is no exact functioning of legislation, there is a high desire to break law from both government official and usual citizen. The theft becomes a norm of the life… Everybody steals… In this content, «steal» means not only physical removal of something to somebody: you steal when you lie, cheat on tax records, customer, seller, neighbor, etc. Why is this happening? In my opinion, transitional conditions or time gives birth to let me call it «transitional mentality» based on Machiavellism: questions like «Who cares»?, «When I become rich I will be very honest… Now I MUST earn money (living, etc.)» are very characteristical to the above mentioned conditions.
Unfortunately, all the mentioned breaks not only economic mechanism but also human behavior: it transforms, degenerates human beings! This is the main aspect of the issue… Nobody wants to struggle against it…