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A quick look at recently released Gross Domestic Product (GDP) estimates from the Bureau of Economic Analysis (BEA) highlights a big problem for American Samoa; they’ve got all their eggs in one basket – er, can of tuna.

 

When you see GDP figures for the US states the breakdowns are predictable. We depend mightily on consumer spending (about 60% of the pie) and the other components, private investment, government spending and the net of imports and exports, don’t vary all that widely. Those that follow such things know that fluctuations in oil prices or housing can affect our numbers as can major changes in imports or exports.

 

But we do not depend on tuna.

 

THE PROBLEM IN AMERICAN SAMOA

 

Not so a few thousand miles from here. American Samoa has a population of only about 68 thousand people. The tuna canning industry is the largest private employer in the territory and the entire economy depends directly or indirectly on how many cans of tuna the US buys. American Samoa imports, cans and exports about $500 million dollars of tuna to the US in a good year. This is a huge per person concentration of risk.

 

ASSESSING YOUR RISK CONCENTRATION

 

Your company signs up for similar volatility if you depend too heavily on one customer, one product line or even one distribution channel. Here are some questions to ask your management team:

 

• - To what extent do we spend a significant portion of our time, money or effort focused on a single customer or group of customers? What has changed in the business environment of those customers? Are there new regulations or technologies that might mean our customers will not be able to buy from us as they have in the past?
• - To what extent are we tied to a single distribution channel? What has changed or is changing about that method of distribution? Are we being forced to take certain costs out of the equation? Are new players emerging?
• - To what extent are we relying on a single source of supply for the various component parts of what we sell? What other options do we have if that supplier is no longer able to perform well?

 

The seven American Samoan islands are dispersed over more than 150 miles of water and the territory has a culture all its own. Still, basic risk management principles from business will probably come in handy as its leaders seek to provide an improving quality of life for its inhabitants. You too should size up your company’s risk concentrations . . . before things start smelly too fishy.