According to the OECD Economic Outlook Interim Report March 2020, projections for annual global GDP growth for 2020 have dropped by half a percentage point to 2.4% due to the coronavirus outbreak.
SMEs represent about 90% of businesses and more than 50% of employment worldwide. Formal SMEs contribute up to 40% of national income (GDP) in emerging economies further rising when informal SMEs are included. The effect of the outbreak on SMEs may be severe, likely because of higher levels of vulnerability and lower resilience related to their size. The direct impact of the virus on industries like food, tourism, retail, cinema, etc., could have potential spill-overs into financial markets, with further reduced confidence and a reduction of credit.
The widespread outbreak, mass quarantine, and travel ban also had an impact on the confidence of both domestic businesses and international companies, according to a survey of 761 business owners by the University of International Business and Economics in mid-February.
The challenges before SMEs
Limited to no cash flow
Most SMEs today are facing a decrease in sales and worker availability for the next several weeks. One in 5 firms has categorized the threat to their business from the coronavirus as high or severe. A further 43% said there was a “moderate” threat. Studies by Market Finance showed that 69% of SMEs have significant cash flow problems, with more than one-third fearing that without any support they would not last until mid-April.
In China, due to the coronavirus outbreak, 20 percent of enterprises will be unable to last beyond a month with their current cash flow, while 64 percent will be unable to last beyond three months.
Supply chain restricted
With mass lockdowns, quarantines, and restricted movements SMEs are facing a major problem of cashflow. 27% of businesses expect the coronavirus to have a moderate to high impact on their revenue. Another 30% expect the virus to have a moderate to high impact on their supply chain. Barriers to business operations vary along the supply chain, with upstream firms mainly affected by labor shortages, while downstream firms face more serious challenges related to supply chains and consumer demand.
With SMEs often having a limited number of suppliers, this could potentially protect some of them from the impact. For instance, German SMEs operating more in regional supply chains are less affected by developments in Asia.
However, SMEs relying on suppliers from other countries and regions with more COVID-19 cases increases their vulnerability with restrictions in transportation by sea, road or air. Disruption of business networks, supply chains, and many business services critical to performance has severely curtailed operations.
For instance, in Italy, the most affected firms are those in transport (98.9%) due to the demand downfall, then tourism (89.9%), fashion (79.9%), and agro-food (77.7%). Unless the crisis stabilizes soon, several SMEs will be out of business.
With looming uncertainty and a bleak outlook, the morale and confidence of business owners and employees alike have taken a blow. The temporary economic shock threatens to leave lasting damage.
With social isolation the fundamental way to prevent the spread, it is growing imperative to address concerns of both employees and clients remotely. The world is facing this crisis together and it’s necessary to be transparent.
With a shortage of cash flow, job security is under question. SME business owners are having to manage through pay cuts or layoffs.
During economic stagnation, being unable to resume work poses a major challenge and places immense stress on the cash flow. As enterprises remain responsible for fixed costs such as wages, rents, and taxes, this may lead to several firms declaring bankruptcy once their cash flow is depleted.
A record 3.28 million workers have already applied for unemployment benefits as the new coronavirus hits the U.S. economy. The number of Americans filing for claims was nearly five times the previous record high.
What can you do?
To boost employee morale, SMEs can undertake small acts like an incentive or bonus to ensure the wellness of their employees. For instance, a Covid bonus was distributed at Zaggle through Zinger Cards. These cards are valid across several online portals.
With the work-from-home being the only viable option, several business owners are using the downtime to figure out the fragmented supply chain, look for new overseas contracts, design training sessions for staff or redesign websites, or use online platforms and social media to keep in touch with regular customers. Customers can empathize with brands facing a crisis, as long as you communicate with them properly. Describe and give customers an insight into the steps being taken to mitigate risk and what is being done to help the community.
These are unprecedented times and it’s imperative that the business communities come together to ensure the wellness of their employees and each other.