14 Reasons Why Somali Pirates Run a $150 Million Per Year Business

Updated: June 17, 2009

With a 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 weapons.

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.

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