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November 1st: Torsten Jacobi, CEO of Creative Weblogging, joins host Anita Campbell. Sponsored by Six Disciplines. Show details.
Sunday, December 28, 2003
Flaws in Italy's Small Business Sector
The collapse of the Parmalat food giant in Italy has revealed a flaw in the Italian system: the lack of effective financial control over its family-owned companies.

Parmalat is not a small business. But it is a family-owned company that started out as a small business and then grew large. The issues facing Parmalat are the same kinds of issues facing Italy's small business sector, just on a larger scale.

According to a report by Agence France Presse, Italy's small business sector depends largely on a system of trust. That system of trust was rocked when it was discovered two weeks ago that Parmalat was relying on a 4.9 billion Euro bank account that did not exist. Banks refused to advance any more cash when the account could not be verified. Then, in a scenario reminiscent of Enron, Parmalat quickly collapsed.

Since then, former officers and directors of Parmalat have revealed a fraud at least twice the size of what was originally suspected. And they have revealed a web of fraudulent transfers of company money into private, offshore bank accounts owned by the controlling Tanzi family. The company is now insolvent.

All of which raises questions about the health of Italy's small businesses. The Italian weekly magazine Panorama asks how many small companies are out there like Parmalat?

As a result of Parmalat's failure, Italy's trusting way of doing business will come under intense scrutiny and likely result in reforms. The fallout will impact Italy's small business sector. Among the most likely impacts: funding sources for Italy's small businesses will become more restrictive; there will be greater regulatory oversight; and, of course, many small businesses, including the dairy farmers who supplied Parmalat, will never recover the money they are owed by Parmalat.
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