Reader Comments

How can we assist small company impacted by the COVID-19 crisis?

by Candy Sterrett (2020-06-22)

Obstacles facing small companies

How big is the coming wave? The world as a whole is likely to get in into an economic downturn in 2020, according to latest estimates from the International Monetary Fund (IMF) ². Some sectors will suffer more than others, with the travel, lodging and food services sectors being hit particularly hard. Companies themselves are likely to take a trip through a four-phase procedure: shutdown, supply-chain disruption, demand anxiety and lastly, healing. The severity and disruption brought on by each phase of the procedure will depend on the policies embraced by governments. We know the effect will be extreme; what we do not know is for how long the crisis will last.

As they move from shutdown to healing, MSMEs will face a combination of risks to their survival:

1. Collapsing demand and access to liquidity. Need has plunged for business and entrepreneurs we support-- even in product sectors-- and some purchasers are slowing payments for orders currently got. MSMEs have small cash reserves, and therefore fail first in a liquidity shock. Organisations who trade internationally are particularly vulnerable, as they depend upon access to progressively scarce United States dollars to fund a range of their costs.

2. Accessing inputs and handling inventory. MSMEs often source inputs from abroad, significantly so as supply chains have become longer and more intricate. For the garment companies we work with in North Africa, for example, as orders have collapsed key inputs, such as fabrics from China, have actually likewise disappeared.

3. Handling the workplace. For producing MSMEs in lockdown scenarios, staying open is challenging as factory floors are not developed for social distancing. Enormous outmigration from cities has implied employees have actually vanished and they might be difficult to remobilize. Many nations have actually suspended support to farmers even as the farming calendar continues.

4. Policy uncertainty and disrupted supply chains. Policies are developing quickly. MSME supervisors often work alone and can not produce crisis teams to track modifications. Among our clients reports having a delivery of fresh produce grounded at an airport since traveler flight has stopped. Supply chain disturbances such as grounded airline companies develop huge liabilities.

5. Accessing emergency situation support: A lot of the small companies we support are on the edge of the official economy or trade informally. They hardly ever draw on government assistance and fairly few take part in networks of government support organizations. As governments assembled emergency assistance, reaching these companies and discovering methods to assist may be hard.

Reactivating company linkages

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

Modify the playbook (and listen). Like other technical support service providers, much of LCGC's projects helping MSMEs have stiff targets and work plans that did not anticipate such a shock. We need to modify these strategies, listen closely to MSME supervisors and governments on what they require-- and discover methods to get it done. For instance, our associates are currently dealing with a fashion industry association in Africa to develop a recovery strategy, with the active assistance of the funder.
Be prepared with data. Global worth chains represent a huge percentage of trade and connect to countless MSMEs. LCGC is utilizing networks within these chains to measure the impacts of the crisis and is making the analysis available to decision makers and companies. The secret is to time studies so they do not disrupt partners while they address instant concerns.
Construct (re-build) the community. MSMEs need service support companies now especially. Federal governments likewise require an environment that can provide much required help to their MSMEs. LCGC's institutional reinforcing group is linking trade promotion organizations from throughout the world to share emerging great practices and resources for small organisations such as market information, so they can discover from each other in genuine time.
Believe worth chains and alliances. Actors throughout entire value chains have to interact to bring back trade. LCGC, for example, is working to preserve the discussion between purchasers and suppliers.
Focus on financing. Because few of LCGC's recipient companies get formal financing, they might be excluded when governments and global lending institutions provide emergency liquidity. LCGC is working with trade financing companies, regulators, guarantors, purchasers, and suppliers to integrate MSMEs into inexpensive funding networks.
It is imperative we begin these processes as quickly as possible, going virtual where we can. Some of LCGC's teams in India have actually discovered methods to assist small companies from a distance, through mentoring start-ups essentially, performing virtual inception missions or even offering early grants to keep them moving. More notably, LCGC's field groups have actually quickly increased their role in collecting data, providing services and preserving relationships with our clients, which will be more vital than ever in our action.

Oftentimes, our MSME recipients are catching the immediate results of COVID-19. When they are all set to talk about recovery, we require to be prepared and respond quickly.