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How can we help small company affected by the COVID-19 crisis?

by Candy Sterrett (2020-06-22)

Challenges dealing with small companies

How big is the coming wave? The world as a whole is likely to enter into a recession in 2020, according to newest price quotes from the International Monetary Fund (IMF) ². Some sectors will suffer more than others, with the travel, accommodation and food services sectors being hit particularly hard. Services themselves are likely to take a trip through a four-phase process: shutdown, supply-chain interruption, need depression and lastly, recovery. The severity and interruption triggered by each stage of the procedure will depend on the policies adopted by federal governments. We understand the impact will be extreme; what we do not understand is how long the crisis will last.

As they move from shutdown to recovery, MSMEs will deal with a combination of hazards to their survival:

1. Collapsing need and access to liquidity. Demand has actually plunged for the companies and entrepreneurs we support-- even in commodity sectors-- and some purchasers are slowing payments for orders already received. MSMEs have small money reserves, and for that reason go out of business initially in a liquidity shock. Companies who trade internationally are especially susceptible, as they depend upon access to increasingly scarce US dollars to fund a range of their costs.

2. Accessing inputs and handling inventory. MSMEs regularly source inputs from abroad, increasingly so as supply chains have ended up being longer and more complicated. For the garment companies we deal with in North Africa, for example, as orders have actually collapsed key inputs, such as fabrics from China, have likewise vanished.

3. Managing the workplace. For manufacturing MSMEs in lockdown scenarios, staying open is challenging as factory floorings are not developed for social distancing. Enormous outmigration from cities has actually suggested employees have disappeared and they may be difficult to remobilize. Many countries have suspended support to farmers even as the farming calendar continues.

4. Policy unpredictability and disrupted supply chains. Policies are evolving quick. MSME supervisors often work alone and can not create crisis teams to track modifications. Among our clients reports having a shipment of fresh produce grounded at an airport since traveler flight has stopped. Supply chain disruptions such as grounded airlines produce big liabilities.

5. Accessing emergency situation assistance: Much of the small companies we support are on the edge of the official economy or trade informally. They seldom draw on government support and fairly few take part in networks of federal government support organizations. As federal governments assembled emergency situation assistance, reaching these companies and finding methods to assist may be challenging.

Reactivating business linkages

When the crisis passes, our beneficiaries will anticipate us to be prepared to assist them reconnect with buyers, re-hire personnel and re-launch production. It is too early to draw lessons but these are our tips, based on early suggestions from the field:

Customize the playbook (and listen). Like other technical support companies, a number of LCGC's projects helping MSMEs have stiff targets and work plans that did not expect such a shock. We must customize these plans, listen closely to MSME supervisors and federal governments on what they require-- and find methods to get it done. For circumstances, our coworkers are currently dealing with a garments market association in Africa to develop a healing strategy, with the active support of the funder.
Be prepared with data. Global value chains represent a huge percentage of trade and connect to millions of MSMEs. LCGC is utilizing networks within these chains to measure the impacts of the crisis and is making the analysis readily available to decision makers and business. The key is to time surveys so they do not interrupt partners while they attend to immediate concerns.
Construct (re-build) the ecosystem. MSMEs need business support organizations now more than ever. Governments also need a community that can provide much needed aid to their MSMEs. LCGC's institutional enhancing group is connecting trade promotion organizations from across the world to share emerging good practices and resources for small organisations such as market details, so they can gain from each other in genuine time.
Think worth chains and alliances. Stars across entire value chains need to interact to bring back trade. LCGC, for example, is working to preserve the dialogue between purchasers and suppliers.
Concentrate on financing. Due to the fact that few of LCGC's recipient companies get official financing, they might be overlooked when federal governments and worldwide lending institutions offer emergency situation liquidity. LCGC is dealing with trade financing service providers, regulators, guarantors, buyers, and suppliers to incorporate MSMEs into affordable financing networks.
It is essential we start these procedures as soon as possible, going virtual where we can. A few of LCGC's teams in India have actually found ways to assist little companies from a distance, through mentoring start-ups virtually, performing virtual beginning missions or perhaps supplying early grants to keep them moving. More importantly, LCGC's field groups have actually quickly increased their function in gathering information, providing services and maintaining relationships with our clients, which will be more critical than ever in our reaction.

In a lot of cases, our MSME recipients are surrendering to the instant impacts of COVID-19. When they are ready to discuss recovery, we need to be ready and respond rapidly.