President Obama’s January 28, 2014 State of the Union Address sets a nationalistic agenda for American jobs.  There are some ideas that even business people (including business lawyers like me) can warm up to in the January Polar chill.

If you have been following the changes in the law, you might find his remarks a bit hypocritical and bombastic.  At least it was an occasion to be selectively optimistic to anticipate future legislation (or executive orders, i.e., Presidential fiat).

Insourcing.  Manufacturing has been outsourced and offshored in global supply chains for a long time due to wage arbitrage, efficient global logistics, factory automation and computerized design.   Obama notes: “over half of big manufacturers say they’re thinking of insourcing jobs from abroad.”  Any reshoring of manufacturing production jobs would unlikely bring back the number of jobs lost during the offshoring years.   Re-localization of these jobs would probably require new skills as manufacturing processes have become more highly efficient. 

Tax Reform.  Obama wants to reform “our tax code [that is] is riddled with wasteful, complicated loopholes that punish businesses investing here, and [that] rewards companies that keep profits abroad.”  He wants to “close those loopholes, end those incentives to ship jobs overseas, and lower tax rates for businesses that create jobs here at home.”  What’s missing is that any tax reform should be used to raise revenue on a permanent basis for both personal and corporate income taxes.  Current proposals will only result in a temporary revenue increase, which Obama would allocate to infrastructure investment.

Small Business and Entrepreneurship.  Recognizing the role of SMB’s in job creation, economic growth and foreign trade revenue, Obama exhorted Congress to “do more” for them.   He claims that “Over the past five years, my administration has made more loans to small business owners than any other.”    How about reducing government regulations which impose onerous costs on SMBs?

International Trade.  Obama wants trade, “new trade partnerships with Europe and the Asia-Pacific” to help SMB’s create more jobs.  “We need to work together on tools like bipartisan trade promotion authority to protect our workers, protect our environment, and open new markets to new goods stamped “Made in the USA.”  China and Europe aren’t standing on the sidelines.” This is a plug to get trade negotiating authority for the Trans-Pacific Trade Partnership and the Trans-Atlantic Trade and Investment Partnership diplomatic deals. 

Innovation.    Obama claims the US is the global leader in innovation, giving us “an edge America cannot surrender.”   He wants to restore R&D tax credits, which lapsed due to the failure of his Administration and the Congress to enact a general tax law for three or four years due to dogmatic positioning.
 
Patent Trolls.  Obama wants to “pass a patent reform bill that allows our businesses to stay focused on innovation, not costly, needless litigation.”  Of course, he fails to mention that business process method patents, judicially approved in the mid 1990’s, helped create new industries in Silicon Valley.  The America Invents Act of 2010 was supposed to have protected businesses from unwarranted litigation through reforms in the processes for evaluating the patentability of pending patent applications.

Immigration.   Immigration reform offers significant economic benefits, which Obama focused on.  Pending reform legislation would open the doors to foreign entrepreneurs, investors and retirees, making the U.S. more competitive with other immigrant – favorable jurisdictions. It will also eliminate abuses of H1-B visas by foreign service companies and promote a more balanced global workforce with significant U.S. consultancies. 

SMB’s after ObamaCare: The New Sub-economy of 49’ers, Outsourcing, Automation, and Part-Timers

What should small and mid-sized businesses do to survive the Patient Protection and Affordable Care Act?   What lessons have we learned from the delayed Employer Mandate?

Thanks.  SMB’s can thank someone in the Obama Administration for raising the white flag and acknowledging the need to delay the “Employer Mandate” by a year until January 1, 2015.  (Of course, the statute does not permit any deferral of any mandates, so the delayed Employer Mandate raises constitutional issues.) 

Workforce Containment.   SMB’s can redefine their mission in a new microeconomy driven by enterprises having 49 or fewer “full-time” employees (the New 49’s).  These 49’s enterprises can avoid the complexity, costs and distractions by forcing more part-time employment (i.e., under 30 hours per week).   That means SMB’s will likely be training and keeping only those employees who will drive sustainable growth, and marginalize all the rest into part-time status, forcing part-timers to buy their health insurance on an exchange (yet to be established) or pay the penalty tax.

Boosting Outsourcing.  SMB’s should look for niches where a company of 49’ers could provide outsourced “back office” or “technical” support to other companies of 49’ers.   Any small business function can  be outsourced, such as payroll service providers, collection companies, technology suppliers, lease administration, insurance administration, HR administration, anything that a small business needs.   This will boost the “business services” economy.   Outsourcers might hire the involuntary part-timers, if needed, or just use more SaaS “web-enabled” tools for administration.  

Management of Projects and the Services Supply Chain.   SMB’s need to develop skills in partnering with others.  Such skills will allow strategic alliances to form.  The integration of a microeconomy of “49’er enterprises “ will involve project management training and tools so that unrelated companies can work as a team competing with larger enterprises.

Globalizing the SMB Workforce.    Under ObamaCare, SMB’s have been invited to globalize their workforces.  If the cost of “unnecessary” health insurance coverage is excessive, SMB’s can set up offshore offices, which can help both increase revenues and reduce costs.  Too bad this could come at the expense of local employment in the US.

Automation.   Automation can reduce labor.  The Affordable Care Act just made robots and software more affordable, comparatively. 

Web-Based Teams.   To cover greater territory, teams can be split into modules and assembled across the country.  Big services firms use webinars and videoconferencing.  SMB’s can survive with more geographical dispersion of staff (particularly in sales) while retaining core skills that can be deployed instantly without transportation.

Optimization by Shifting Societal Costs.  The resulting outsourcing, offshoring, part-timing, de-scaling and horizontal integration will have a societal cost.   But, until the law is changed, this is what the law encourages.  Nimble entrepreneurs will fill new niches, and savvy family businesses and new ventures will avoid hiring unless it drives core business revenue.  Everyone will be more specialized to remain small, nimble and niched.  

Pigeon Power!

Why establish your startup in France?  Why invest there?  

On April 12, 2013, the French government reportedly rejected Yahoo’s bid to acquire 75% of a leading video sharing website Dailymotion, owned by Orange, a subsidiary of France Telecom, S.A.  The ostensible reason was that control of a crown jewel of French Internet startups should remain in France.  No great French Internet company should lose its French identity.  The French government owns a 27% stake in France Telecom, S.A.

This result will only harm the French economy by encouraging French entrepreneurs and SMB’s to seek venture capital, growth opportunities and technologies outside of France.   This comes after a year of hostile words by Arnaud Montebourg, France’s Minister of Industrial Renewal  (“productive renewal”) against foreign steelmakers and others who might bring in foreign investment and foreign business methods for French industry.  It will deprive Dailymotion of capital investment needed for sustainability and growth.

Having studied, lived and worked in France, and as a tech business lawyer in New York, I offer my own lament to French entrepreneurs and SMB’s in their own tongue.  (If you only studied French in high school, try www.translate.google.com for a breezy translation.)

Où bâtir votre startup français?   Evidemment, la France ne vous accueille pas. 

C’est ça le message du gouvernement de François Hollande, dont le Ministre du Redressement Productif Arnaud Montebourg a refusé le 12 avril 2013 de permettre à la startup Dailymotion de se vendre le contrôle à Yahoo, Inc.  Le Ministre aurait permis la vente de 50% mais pas le 75% convenu entre la « startup » vedette française Dailymotion (fondée en 2005) et Yahoo. 

Quelles seront les conséquences de la « fin du capitalisme libre» que M. Montebourg a annoncée en 2012 ?  

D’abord, les entrepreneurs français (et leurs investisseurs, comme les « anges d’affaires » (Business Angels) et les fonds de capital risque) vont croire que les subventions et certaines baisses prioritaires de taux d’impôts, récemment annoncées en France, sont illusoires.  On va conclure qu’il vaut mieux établir les moteurs de croissances dans les pays étrangers des « Pigeons ».   L’Ireland, le Canada et, bien sur, les Etats-Unis vont les accueillir avec des visas d’entrepreneur, de startup, d’investisseur et de commerçant.  Sous Hollande, la fuite des cerveaux, des jeunes et des PME va s’accélérer.  Même s’ils ne se délocalisent pas personnellement pour des raisons de famille, les PME pourront établir des sociétés affiliées étrangères dans de tels pays d’accueil, où il trouveront du capital risque (venture capital), des marchés, des taux d’impôts raisonnables et le droit du travail plus équilibré que devant les tribunaux de Prud’hommes. 

Ensuite, déprimés par un dirigisme protectionniste en France, les prix de vente pour les PME français vont rester en dessous des niveaux atteints normalement dans d’autres pays.  

Enfin, au lieu de préserver la façon de vivre, et de protéger les mœurs et coutumes français, ce gouvernement de François Hollande va vider la France des personnes qui auraient soutenu autrement sa place de leader dans les économies européennes et mondiales. 

Et je ne parle as des obligations de la France d’ouvrir des portes à l’investissement étranger sous la convention de l’OMG (WTO) sur les investissements portant sur le commerce international.   Non, je me tais.  Je ne veux pas condamner la France du non-respect de la lettre des lois.   Montesquieu m’a enseigné quand même « l’esprit des lois. »

In short, look around.  Chercher le business là où vous êtes bien accueilli.