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How can we assist little service impacted by the COVID-19 crisis?

by Giuseppe Colon (2020-07-13)

Difficulties facing small companies

How big is the coming wave? The world as a whole is likely to enter into a recession in 2020, according to most current 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 especially hard. Businesses themselves are likely to take a trip through a four-phase process: shutdown, supply-chain interruption, need anxiety and lastly, recovery. The seriousness and interruption caused by each phase of the process will depend upon the policies embraced by governments. We understand the effect will be extreme; what we do not know is the length of time the crisis will last.

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

1. Collapsing demand and access to liquidity. Need has actually plunged for business and entrepreneurs we support-- even in commodity sectors-- and some purchasers are slowing payments for orders currently received. MSMEs have small money reserves, and therefore go out of company first in a liquidity shock. Businesses who trade worldwide are especially susceptible, as they depend upon access to progressively scarce United States dollars to fund a range of their expenses.

2. Accessing inputs and managing stock. MSMEs often source inputs from abroad, increasingly so as supply chains have actually become longer and more complex. For the garment companies we deal with in North Africa, for instance, as orders have collapsed key inputs, such as materials from China, have also disappeared.

3. Managing the work environment. For making MSMEs in lockdown circumstances, remaining open is challenging as factory floors are not designed for social distancing. Massive outmigration from cities has meant employees have vanished and they may be difficult to remobilize. Many nations have suspended assistance to farmers even as the farming calendar continues.

4. Policy uncertainty and interrupted supply chains. Policies are evolving fast. MSME managers typically work alone and can not develop crisis groups to track modifications. One of our clients reports having a shipment of fresh produce grounded at an airport since traveler flight has actually stopped. Supply chain disruptions such as grounded airlines develop substantial liabilities.

5. Accessing emergency situation assistance: A lot of the little services we support are on the edge of the formal economy or trade informally. They rarely draw on federal government assistance and fairly few take part in networks of government support institutions. As governments created emergency support, reaching these business and discovering ways to assist might be hard.

Reactivating organisation linkages

When the crisis passes, our recipients will expect us to be prepared to help them reconnect with purchasers, re-hire staff and re-launch production. It is prematurely to draw lessons but these are our tips, based upon early guidance from the field:

Customize the playbook (and listen). Like other technical assistance suppliers, numerous of LCGC's tasks assisting MSMEs have stiff targets and work plans that did not expect such a shock. We should customize these strategies, listen carefully to MSME managers and federal governments on what they need-- and find methods to get it done. For instance, our associates are currently working with a fashion industry association in Africa to establish a recovery strategy, with the active support of the funder.
Be ready with data. International value chains account for a substantial proportion of trade and link to millions of MSMEs. LCGC is using networks within these chains to determine the effects of the crisis and is making the analysis available to decision makers and business. The key is to time studies so they do not interrupt partners while they address immediate problems.
Construct (re-build) the environment. MSMEs require organisation assistance companies now more than ever. Governments likewise require a community that can provide much needed help to their MSMEs. LCGC's institutional strengthening team is linking trade promo companies from across the world to share emerging excellent practices and resources for small companies such as market information, so they can discover from each other in genuine time.
Believe worth chains and alliances. Stars across whole value chains need to work together to bring back trade. LCGC, for instance, is working to keep the discussion between purchasers and providers.
Concentrate on finance. Because few of LCGC's recipient companies get official financing, they might be excluded when governments and worldwide lending institutions offer emergency situation liquidity. LCGC is working with trade finance providers, regulators, guarantors, purchasers, and providers to integrate MSMEs into cost effective financing networks.
It is necessary we begin these procedures as soon as possible, going virtual where we can. A few of LCGC's groups in India have actually found ways to help little services from a distance, through mentoring start-ups essentially, carrying out virtual beginning missions or perhaps supplying early grants to keep them moving. More importantly, LCGC's field groups have rapidly increased their role in gathering information, delivering services and maintaining relationships with our clients, which will be more vital than ever in our reaction.

Oftentimes, our MSME recipients are surrendering to the instant results of COVID-19. When they are all set to talk about healing, we require to be prepared and react quickly.