- 08/05/2020
- Category: Commentaries
The world economy had suffered quite the impact during the period of Coronavirus disease 2019 or the COVID-19 outbreak. The majority of businesses have suffered significant losses. Several estimated challenges include the significant reduction of demand and access to liquidity, especially for those who are very much dependent on international trade.[1] The International Monetary Fund (IMF) foresees that the world will experience a recession in 2020 due to this.[2] In this case, small and medium-sized enterprises or SMEs, in particular, have hit hard during the past few weeks. Such is concerning as the world economy is heavily reliant on SMEs. Around 90% of businesses and 50% of employment worldwide is represented through SMEs.[3] SMEs could contribute up to 40% for developing countries Gross Domestic Product (GDP), and such numbers have yet to include the informal SMEs.[4] This impact is especially severe for some sectors, such as tourism and manufacturing sectors.[5] With this in mind, it is no surprise that emerging markets are very dependent on their SMEs to create employment and to absorb the workforce. However, policies adopted by many governments such as physical distancing together with people’s increasing concern over COVID-19 has created an environment which highly limits physical contacts between businesses and their clients. Thus many have opted to go digital as a solution for their businesses. However, taking up such an option is not without its own challenges.
Going Digital: Challenges for SMEs
The involvement of technology and digital platforms for the economy is one of the most encouraged solutions for SMEs in these times of COVID-19 outbreak. However, the transition to such strategies is not without its challenge. Firstly, not all sectors of SMEs are simultaneously compatible with the transition. For instance, the policy of social or physical distancing enacted and adhered by most local governments do not guarantee smooth transition for every business, primarily if those businesses rely on or are unable to avoid daily contacts or require workplace presence to operate.
Secondly, assuming that most SMEs resort to the digital platform for their business, it is expected that the competition through the platform would likewise increase. In this case, initially built foundations such as consumer trust and established branding could help businesses get a head start. Otherwise, they should be more ready to strategize for expected competitions. For instance, considering to lower down their product prices while adjusting their expenditure, selling products in bulk, or creating a discounted package.[6] This is important as customer experience from take outs may be less than dining in. Lowering down prices and offering a unique discounted package during the period may boost their sales, as such strategy may emphasize that products sold are special and limited.[7] This strategizing could also help businesses avoid devaluation when the period of outbreak ended.[8] In terms of marketing, businesses may consider alternative advertising sites such as game applications or online videos.[9] This is so as being at home, people may seek alternative sources of entertainment while still fulfilling their social needs.[10]
Thirdly, consumer needs and priorities also transitioned during the outbreak. Consumers tend to prioritize the purchase of necessities such as food, household items, and medicine.[11] Other things are mostly under second priority, while luxury items are considered least of importance. Consumer behavior may also transition, for instance, due to health concerns, many may opt for cashless transactions, whether venturing out to shop or through online orders. COVID-19 forced a condition for which consumers may need to try new things to fulfill their necessities.[12] SMEs must also take note that this change of behavior may persist even after the outbreak as consumers learned the convenience of digital transactions.
In addition to these factors, digital literacy also plays a crucial part in the transition and success of business operations. Not everyone is equipped with the capacity to go digital. For instance, cafes operated by students or graduates who are familiar with digital platforms are mostly considered to be more ready to get involved in the transition. Not to mention, many are already involved themselves. On the other hand, sellers in “pasar” or traditional markets may be less knowledgeable in the field. In this case, local and grassroots communities could help assist these sellers in terms of equipping them with the required knowledge. The government’s role in this is also essential to encourage and make sure that SMEs are equipped with the necessary skills and sufficient digital literacy.
Thus, going digital is indeed the appropriate solution for SMEs to face the challenges brought by the COVID-19 outbreak. However, the extent of its success may vary from sectors. There are also factors such as competition, change in consumer behavior, digital literacy, and capacity to take into account when transitioning to digital platforms. However, despite all these challenges, not going digital is unwise in these times, considering the inability for consumers to access most services physically or without technology. Thus going digital has seemingly become the bare minimum for businesses to survive. Hence, to further secure their business, SMEs should be digitally literate, creative, and agile to face the upcoming challenges when they decide to take up this bare minimum. The governments should also help these businesses secure liquidity and enact policies that could assist SMEs not only to survive but also to reach their utmost potentials.
Author: Mira Ardhya Paramastri
Editor: Treviliana Eka Putri
Read more articles written by Mira Ardhya Paramastri
[1] Skidmore, R., Virdee, J. (2020). How can we help small business affected by the COVID-19 crisis?. International Trade Centre (Online). Available at: http://www.intracen.org/covid19/Blogs/How-can-we-help-small-business-affected-by-the-COVID-19-crisis/. [Accessed on 3 April 2020].
[2] Ibid
[3]The World Bank. (2020). Small and Enterprises (SMEs) Finance. The World Bank (Online). Available at: https://www.worldbank.org/en/topic/smefinance [Accessed on: April, 3rd 2020].
[4]Ibid
[5] Skidmore, R., Virdee, J. (2020). How can we help small business affected by the COVID-19 crisis?. International Trade Centre (Online). Available at: http://www.intracen.org/covid19/Blogs/How-can-we-help-small-business-affected-by-the-COVID-19-crisis/. [Accessed on 3 April 2020].
[6] Mohammed, R. (2020). How Restaurants Can Survive Right Now. Harvard Business Review (Online). Available at: https://hbr.org/2020/03/how-restaurants-can-survive-right-now [Accessed on: April, 13th 2020].
[7] Ibid
[8] Ibid
[9] Balis, J. (2020). Brand Marketing Through the Coronavirus Crisis. Harvard Business Review (Online). Available at: https://hbr.org/2020/04/brand-marketing-through-the-coronavirus-crisis [Accessed on: April, 13th 2020].
[10] Ibid
[11] Ibid
[12] Ibid
