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

by Candy Sterrett (2020-06-22)

Obstacles dealing with small companies

How big is the coming wave? The world as a whole is most likely to get in into a recession 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 struck particularly hard. Companies themselves are likely to take a trip through a four-phase procedure: shutdown, supply-chain disruption, need anxiety and finally, recovery. The severity and disruption triggered by each phase of the procedure will depend on the policies adopted by governments. We know the impact will be severe; what we do not understand is for how long the crisis will last.

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

1. Collapsing need and access to liquidity. Demand has plunged for the companies and entrepreneurs we support-- even in commodity sectors-- and some purchasers are slowing payments for orders already got. MSMEs have little money reserves, and for that reason go out of organisation first in a liquidity shock. Businesses who trade internationally are especially susceptible, as they depend on access to increasingly limited US dollars to money a variety of their costs.

2. Accessing inputs and managing inventory. MSMEs regularly source inputs from abroad, increasingly so as supply chains have become longer and more complex. For the garment business we deal with in North Africa, for example, as orders have collapsed essential inputs, such as fabrics from China, have actually also vanished.

3. Handling the workplace. For making MSMEs in lockdown scenarios, remaining open is challenging as factory floorings are not designed for social distancing. Huge outmigration from cities has actually indicated employees have disappeared and they might be tough to remobilize. Many countries have suspended support to farmers even as the agricultural calendar continues.

4. Policy unpredictability and disrupted supply chains. Policies are progressing fast. MSME managers often work alone and can not develop crisis groups to track changes. One of our customers reports having a shipment of fresh produce grounded at an airport since traveler air travel has stopped. Supply chain disturbances such as grounded airlines create huge liabilities.

5. Accessing emergency support: A lot of the small companies we support are on the edge of the formal economy or trade informally. They hardly ever make use of federal government support and relatively couple of take part in networks of government assistance institutions. As governments created emergency support, reaching these business and finding methods to assist might be difficult.

Reactivating service linkages

When the crisis passes, our beneficiaries will anticipate us to be prepared to help them reconnect with buyers, re-hire staff and re-launch production. It is prematurely to draw lessons however these are our tips, based on early guidance 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 carefully to MSME managers and governments on what they require-- and discover ways to get it done. For example, our associates are currently dealing with a fashion industry association in Africa to establish a healing strategy, with the active support of the funder.
Be prepared with information. Global worth chains represent a substantial proportion of trade and connect to countless MSMEs. LCGC is utilizing networks within these chains to determine the impacts of the crisis and is making the analysis readily available to decision makers and business. The key is to time studies so they do not disrupt partners while they deal with immediate problems.
Construct (re-build) the community. MSMEs need company support companies now more than ever. Governments likewise need a community that can provide much needed help to their MSMEs. LCGC's institutional enhancing team is linking trade promotion companies from throughout the world to share emerging good practices and resources for small companies such as market details, so they can gain from each other in real time.
Believe value chains and alliances. Actors across entire value chains have to work together to restore trade. LCGC, for instance, is working to preserve the dialogue in between purchasers and suppliers.
Concentrate on financing. Due to the fact that few of LCGC's beneficiary business receive official funding, they may be excluded when governments and worldwide lenders offer emergency liquidity. LCGC is dealing with trade financing service providers, regulators, guarantors, buyers, and providers to integrate MSMEs into cost effective funding networks.
It is important we begin these processes as quickly as possible, going virtual where we can. Some of LCGC's teams in India have discovered methods to help small companies from a distance, through mentoring start-ups virtually, conducting virtual inception objectives and even providing early grants to keep them moving. More importantly, LCGC's field groups have actually quickly increased their role in collecting information, providing services and maintaining relationships with our customers, which will be more important than ever in our action.

In lots of cases, our MSME beneficiaries are yielding to the immediate results of COVID-19. When they are all set to talk about recovery, we require to be ready and respond quickly.