COVID-19 and SMEs: Survival, Resilience and Renewal

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In a recent survey of Small and Medium Sized Enterprises (SMEs) by Ernst and Young [i], 79% of board members stated that their organisations were not well-prepared to deal with a crisis such as today’s pandemic. Several other analyses also indicate that the COVID-19 pandemic will push down the full-year gross domestic product (GDP) globally from the 2.5% that was forecasted in January 2020 to 0%.[ii]

In this climate, corporations are urgently attempting to satisfy the dual key targets of meeting strategic goals and also customer demands (which tend to be bespoke in several sectors). However, a closer look at these two goals reveals that strategic goals also includes employee wellbeing (a particular problem during this period), maintaining brand image and overall reputation, supply chain and procurement essentials, while staying clear of legal challenges that the current situation might inadvertently throw up.

So, while sending out a responsible business image that needs to be maintained, at the same time longer term stakeholder management and internal coherency in management decisions are equally important. All of this while keeping healthy financial charts, tables and projections in today’s remote board room meetings.

An OECD analyses show that new business registrations in the U.S. fell by more than 75% relative to the prior year from 15-16 March onwards [iii] – the day when lockdowns started. Similarly, in the Netherlands, the number of start-ups dropped by 34% in April 2020 compared to April 2019 [iv], in particular in business services and construction.

Also, in China venture capital investment in new companies declined by 60% in the first quarter of 2020 compared to the first quarter of 2019. In Canada, a survey suggests that 59% of Canadians are considerably less likely to start a business after COVID-19 than before.[v] While these numbers indicate how deeply the aspiring start-ups and entrepreneurial initiatives have been hit in several leading countries, it also demands an exploratory look into how existing and relatively new businesses (especially, smaller ones) are coping under the circumstances.

The Competitive Engine

Over 50% of SMEs have already experienced strong decline in revenues and more than half of them do not have reserves to survive more than 3 months without help.[vi] Yet SMEs account for 60% of employment and 50-60% in value added across OECD countries.

They remain the competitive engine of many regions and cities while contributing to the fabric of local communities. Policy makers in several countries, including most BRICs [Brazil, Russia, India, China] have responded by deferring payments and assisting with temporary layoffs, enhancing access to credit, providing grants and wage subsidies – amongst many other short-term measures. However, these quick fixes cannot continue indefinitely. Therefore, strategic action is required to enhance SME resilience by opening new markets and by helping them to adopt new technologies and work practices.

The vigour, agility and the general wellbeing of employees should be a priority for small and large businesses alike. Despite the image portrayed on social media, throughout the lockdown limited working hours, work from home, virtual leadership and new strategies for remote engagement have brought considerable difficulties in all major sectors.

For progressive organisations, small and large, the challenges are on several fronts, beginning with identifying the current bottlenecks, before listing challenges and potential (and implementable) solutions.

The primary concern of any business should be the wellbeing of employees and their families. This should look beyond the ‘duty of care’ component of management and take a more humane and ‘affiliative’ leadership approach.

Secondly, perhaps the most important consideration should be communication. Not only how clear and concise a message should be, but also how well-coordinated and standardised the communication systems is to ensure clarity when engaging with key stakeholders.

A third consideration is the challenge of ensuring sustainable financing and stable cash reserves in the period following lockdown.

A fourth component is to assess what kind of models and constructs are in place for companies to assess risk and crisis management.

Fifthly, despite talks of a ‘new’ normal etc., the empirical demand patterns in some markets will not witness a sea change immediately after the crisis lifts. The challenge is to address the impact of demand disruptions, which businesses will need to recover from. This will hit the supply chain and entail procurement risks that businesses need to mitigate both in the medium and long term. The practical foresight of resilience and prudence will play a colossal role.

Staffing Limitations

The emphasis on driving production efficiency, strong yield, and high first pass quality is even more urgent now as many companies have reduced capacity utilization due to staffing limitations. Data shows that even after the reopening of factories, most sites are still struggling to achieve 50% of their previous capacity.

Most companies are likely to experience significant disruption to their operations and will underperform for the duration of the COVID-19 crisis. Companies that are operating in, or exposed, to countries that are significantly affected by COVID-19 will experience disruption to their supply chain and production commitments.

A greater emphasis on employee wellbeing should be as a priority since employees are the one true asset, even more so if they are motivated as much as their line managers towards a common larger goal.

For SMEs, staffing and recruitment should remain key components during times such as today. At least the market has provided a brief window to rethink the acquisition, management and retention of talent. This has as much to do with change management as with determining the culture of the company as it will be in the future. One tip that might prove worthwhile is to be empathetic in reducing employee hours.

Particularly in the case of businesses that have not been in complete lockdown, or those that have been partially open with restricted hours every day, or those slowly expanding their opening hours as lockdowns are lifted in phases: it is often best to speak directly with employees about their financial situations.

Most zero-hour contract workers in retail outlets, food and beverage, fast-fashion and also the hospitality industry are self-selecting towards reduced hours, thereby, saving the time and energy of line manager cutting the hours of those who may be more dependent on the income from that employment.

Provide Reassurance

An equally prudent approach towards customers is to provide reassurance during this period. That is easier said than done for companies that are widely visible on social media. The question is how personalised, accurate and contextual that message should be.

Clearly, there is a temptation to post often on social media, but this also carries challenges and long-term risks. A lack of clarity, and meaningless assurances to customers could do far more damage than not posting at all. A recent survey showed that 34% of customers,[vii] especially concentrated in the Gen-Z cohort use social media platforms channels as an information source.

To keep a business’s head above water, this may also be a good time to reach out to lenders to negotiate short-term reliefs. This could come either in the form of deferred payments or extended credit lines. As mentioned earlier, the focus on supply chain and procurement in this period is essential.

This is also important because there may be significant changes in stakeholder relationships arising out of current decisions. Equally timely and important is reaching out to business vendors to confirm supply continuity. Some of these businesses may be facing their own hardships. This is a good time to work closely with them and explore opportunities for mutual benefits. Some of these businesses could offer deferred payment terms as well.

Going forward, survival, resilience, and renewal strategies need to be independently developed if the pandemic is to teach businesses a crucial lesson or two.

[i] Ernst and Young (2020). Is your organization prepared to respond?, EY Global Risk Survey (accessible at https://www.ey.com/en_ie/covid-19/is-your-organization-prepared-to-respond-)

[ii] World Bank (2020). Pandemic, Recession: The Global Economy in Crisis, World Bank (accessible at https://www.worldbank.org/en/news/feature/2020/06/08/the-global-economic-outlook-during-the-covid-19-pandemic-a-changed-world)

[iii] OECD (2020). Coronavirus (COVID-19): SME policy responses, OECD Policy Responses to Coronavirus (COVID-19) (accessible at http://www.oecd.org/coronavirus/policy-responses/coronavirus-covid-19-sme-policy-responses-04440101/)

[iv] OECD (2019), OECD SME and Entrepreneurship Outlook 2019, OECD Publishing, Paris (accessible at http://www.oecd.org/industry/smes/SME-Outlook-Highlights-FINAL.pdf)

[v] McKinsey & Company (2020). COVID-19: Briefing note: June, 2020, COVID-19: Implications for business (accessible at https://www.mckinsey.com/business-functions/risk/our-insights/covid-19-implications-for-business)

[vi] Yoshino, N. And Taghizadeh-Hesary, F. (2016) Major Challenges Facing Small and Medium-sized Enterprises in Asia and Solutions for Mitigating Them, ADBI Working Paper Series, Asian Development bank (accessible at https://www.adb.org/sites/default/files/publication/182532/adbi-wp564.pdf)

[vii] The Asean Post (2020). Gen Z’s use of social media has evolved, The Phillipines (accessible at https://theaseanpost.com/article/gen-zs-use-social-media-has-evolved)

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About Author

Boidurjo Rick Mukhopadhyay

Dr. Boidurjo Rick Mukhopadhyay graduated Summa Cum Laude with a BA (Hons) in Economics and received a MA from the Institute of Development Studies (UK) and PhD from the University of Sussex (UK). Rick is a Management and Development Economist working extensively with the higher education industry, Government Ministries, and think tanks across the UK, EU and East Asia. Rick’s core research interests are in triple helix relations, entrepreneurship, innovation, renewable energy (esp. solar), rural development, cross-national education, agribusiness, collaborative consumption/ gig economy, and sustainability. Besides publishing his research and speaking internationally, Rick also has experience of leadership development workshops, leading international summers schools, quality assurance visits and motivational training.

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