Defense Cuts Looming – Again

Defense cuts are looming once again as the US government seeks to balance its budget. The fairly predictable reaction from politicians is to protest the cuts, which will hurt individual states during an election year. What the general public might not know — but the supply chain does — is that cuts will harm a segment of the electronics industry known as minority-owned/disadvantaged businesses.

Sourcing agreements require a certain portion of the government's spending to be directed toward these businesses, which include those owned by women, ethnic minorities, and veterans. I've come across a number of companies that qualify in the electronics distribution/manufacturer's rep space. In distribution, it is fairly easy to set up a business if you can invest capital in inventory. Over the years, I've covered one- or two-person businesses operating out of homes, garages, and basements. Many of them are reputable businesses that take supplying the US government seriously.

An organization called the Coalition for the Common Defense compiled some state-by-state estimates for losses if the budget cuts go through. In New York alone (PDF), 379 businesses owned by women “provided goods and services for America's national defense,” and those businesses could lose more than $50 million of revenue.

The term for this particular type of budget cut is sequestration, which basically means cuts will happen across the board. In September, Secretary of Defense Leon Panetta compared mandatory defense cuts to “shooting ourselves in the head.”

The coalition described the impact on the Empire State this way.

New York defense prime contractors earned over $7.59 billion in 2011 protecting America, but now they may face 18% revenue cuts under Sequestration — starting in 2013.
New York defense contractor revenue losses could be greater than $1.37 billion — each year.

I'd like to hear from minority-owned/disadvantaged businesses in the electronics industry. Is this the usual posturing over defense cuts, or is it a very real threat?

6 comments on “Defense Cuts Looming – Again

  1. bolaji ojo
    June 7, 2012

    Barbara, Defense spending needs to come down, period. What effects this has on businesses is debatable but over the years and especially since last decade defense spending has ballooned to the point its effect on the economy has become bigger than it should be.

  2. Nemos
    June 7, 2012

    But why the minority-owned/disadvantaged businesses are exposed and focused to the military industry instead of doing business and in other sectors of the electronic industry? In addition, it seems to me very logical to cut off for the defense if you need money to support other sectors of the State.

  3. _hm
    June 7, 2012

    @Bolaji: I agree with you. Government should not spend tax payers money for supporting some minority owned businesses or like.


  4. Eldredge
    June 7, 2012

    I think, at least in part, because the goverment levies requirements on the defense industry (primarily the big defense contractors) to perform a certain amount of business with minority owned companies, providing an advantage for minority owned businesses to play in that industry.

  5. Barbara Jorgensen
    June 8, 2012

    Defense spending is part of the bigger problem of US government that allocates money for votes, such as a cheerleading museum in Texas and a grant to study the mating habits of scallops (or it is clams?) It's all gotten way out of hand, and I think the government can adjust to a decrease across the baord. As to minority-owned business, I'm not sure they are in other sectors of the government or even the private sector. I think this originally was a good idea that does get taken advantage of. A business should earn a customer's patronage by providing superior products and services. At the same time, bidding against big defense contractors has to be daunting for any small business. Ideas?

  6. bolaji ojo
    June 8, 2012

    Barb, Ideas for small businesses bidding against a bigger competitor in defense? See your congressman/woman or senator!

    I don't advocate this as a sane strategy but in the confused world where business mixes with politics who is advocating for you is extremely important.

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