By Inside CRM Editors
November 24, 2008
global financial slump, daily
layoff announcements and major corporate implosions, businesses need
all the help they can get to stay afloat. Though a seemingly unlikely
source of economic guidance, the multimillion dollar Somali pirate
operation off the coast of northeast Africa has plenty to offer struggling
companies today. Here are 14 lessons your business can learn from the
illicit but profitable Somali pirate trade:
1. Low Overhead: Somali pirates use nothing but the
basics to run their business. They operate off of a mother ship — nothing
more than an old fishing boat — from which they launch speed boats that
handle the actual attacks on the targeted vessels. They carry hooks,
ladders and basic Somali military weaponry to achieve their goal of
infiltrating the victim ships.
2. Diversified Labor Force: The Somali pirate labor force
is split into three main groups. According to BBC analyst Mohamed Mohamed,
their pirate gangs are comprised of ex-fishermen, which are considered the
brains of the operation due to their knowledge of the ocean waters;
ex-militia, which have fought for former Somali warlords and handle the
muscle behind the operation; and technical experts that operate the
necessary high tech communications equipment, such as GPS, satellite
phones and military hardware.
3. Flexible Business Operations: The pirates frequently
move their central operations from port to port for several reasons: one,
to achieve proximity with targeted vessels; two, to keep naval ships at a
distance; and three, to increase their reach.
4. Dominant Market Share: The International Maritime
Bureau estimates that 30 percent of all pirating activities worldwide come
from Somali operations.
5. Good Location: According to the Associated Press, more
than 10 percent of petroleum shipments to North America and Europe travel
through this region.
6. Access to Key Industry Knowledge: Somali expats living
in nearby Middle Eastern port cities notify pirates of large vessel
departures with valuable merchandise.
7. Good Distribution of Profits to Employees and Shareholders:
The demise of most organized crime operations normally comes from
infighting and internal power struggles. Somali pirates have a unique
distribution of profits that reaches friends, family and clan members
across the region. There have been few reports of conflict from within
Somali pirate groups.
8. Running a Cash Business: The best business is one in
which you operate with cash. Somali pirates of course do not accept credit
cards or checks, nor do they offer terms. Everything is handled in cash —
which provides for a very healthy cash flow statement.
9. Negotiating to Optimize Return on Inventory (Albeit Stolen):
Somali pirate spokesman Sugule Ali commented that the pirates are not
greedy — they're just trying to protect themselves from hunger. Although a
$20 million ransom might seem like a ridiculous sum to feed themselves,
the pirates have become effective negotiators in asking for amounts that
will get paid.
10. Reinvesting a Big Portion of Profits into the Business:
The Somali pirates have grown their business from a small fleet of
fishermen trying to keep international boats from poaching their waters to
a multinational, multimillion dollar enterprise by reinvesting profits
into the purchase of new a mother ship, more speed boats and sophisticated
11. Competitive Prices: Though limited to the shores of
northeastern Africa, the Somali pirates have an understanding of the world
economy. Several affected companies and governments have argued that it is
sometimes cheaper to pay the ransom than to mobilize a national navy or
hire private security to properly patrol the region’s waters.
12. A Repeatable Business Process: The pirates began
operations in the late 1990s patrolling their fishing waters. In just
under a decade they have improved on their process of overtaking ships by
sheer repetition. In 2008 alone, it is estimated that they have seized
over 90 boats.
13. Good Inventory Turn: Out of the 90 ships the Somali
pirates seized this year, they only have 17 left on inventory.
14. Diversification: As with any other major corporation,
growth and stability come from diversification. It has been rumored that
the initial Somali pirating operations were funded by wealthy Dubai
businesspersons a few years ago. Somali pirates are now diversifying their
operations by lending money to those same executives that have lost
millions of dollars in the current financial meltdown.
Think the Somali pirates have other lessons to offer struggling
businesses? Leave your ideas in the comments box below.