Can the European Debt Crisis Affect US Small Businesses?

In 2011, Europe faced one of its deepest debt crises. Some countries in the eurozone such as Greece and Portugal were heavily indebted and they needed bailouts from other member states. However, Germany was the only country not affected by the crises, making her the "savior" of the region. As a result of the EURO crisis, the AAA rankings were lost by France, Italy, Spain, Cyprus, and Portugal (Preston) (Lelieveldt, 2016).  Additionally, several other economies were affected by the European debt crisis, most notably the US, which has large multinational companies that compete in Europe. Consequently, the U.S based small business enterprises (SMEs) faced tough times due to this economic crisis. Even now, small businesses in the U.S faces reduced cash flow, marketing constraints, and budgeting constraints as a result of the EURO economic recession. This essay seeks to answer the question “Can the European debt crisis affect US small businesses?” 

Firstly, the European debt crisis can lead to reduced cash flows to U.S based small businesses. Most small businesses typically do not have large cash resources, they tend to have a tightly controlled cash flow. In a nutshell, money comes in, money goes out; if the customer doesn't pay on time, the entire cycle is at risk. It is common for customers to delay purchases during a recession because they are waiting for their own income to arrive (Koos et al., 2017). As payments fall behind schedule, a chain reaction occurs and all aspects of the business are slowed down. Therefore, as a result of not being to access credit due to the EURO crisis, small businesses are unable to borrow to overcome this problem. This makes it hard for them to survive these tough economic times. 

Secondly, the European debt crisis can also lead to marketing constraints among small businesses in the U.S. Marketing is often seen as a luxury by companies, and it's frequently one of the first activities cut when budgets are tight. Companies with a well-established customer base or products that are unique and have little competition are likely to be able to go weeks without marketing and advertising. In the long run, this might be detrimental to the company since no new customers are being brought in to counter customer attrition. To combat this, many small businesses devise new guerrilla marketing strategies that cost less. 

Thirdly, the European debt crisis also puts small businesses at risk of undergoing budgeting constraints. In a small business, revenue losses and financial shortages often lead to budget cuts wherever possible. Due to this, one of the first things a business owner does is to lay off employees so they can get out of their rental agreement. Consequently, the business may fail or strain to survive due to a lack of manpower. Thus, the remaining staff is further overworked or demoralized, which further reduces their ability to generate income. 

In conclusion, the European debt crisis can significantly affect the survival of small businesses in the U.S. The U.S economy has been affected largely as a result of this economic recession putting small businesses in tough situations. It has resulted in a financial crisis among these businesses making it hard to solve issues such as budgeting constraints, marketing constraints, and a reduction of cash flow.     

References 

Lelieveldt, H. (2016). Which European UNION? Europe after the Euro crisis. West European Politics, 39(4), 911–912. https://doi.org/10.1080/01402382.2016.1166732 

Koos, S., Vihalemm, T., & Keller, M. (2017). Coping with crises: Consumption and social resilience on markets. International Journal of Consumer Studies, 41(4), 363–370. https://doi.org/10.1111/ijcs.12374