In most financial crises, it is the
MSME sector that is usually the worst impacted. The current pandemic, being
unique in nature – as it poses a potential threat to both human health and the economy
– has impacted MSMEs harder than ever before.
According to a recent survey of 14,444 MSMEs, conducted in the second half of May
2020, nearly 50% of MSMEs have witnessed a 20-50% impact on their earnings due
to the disruptions caused by the COVID-19 pandemic. The study, which focussed
on the financial impact of the pandemic on MSMEs and their outlook towards the
earnings, revealed that smaller-sized firms` earnings were more affected by the
pandemic. Beyond lack of size, other factors that work against entrepreneurs in
this segment are inadequate infrastructure, the informal nature of their business,
insufficient access to finance, which comes at high costs, and inflexible
labour laws. In more recent times, cheaper Chinese imports also added to the
challenges that they had to work with. The impact of all these factors, except
the last one, has compounded the plight of MSME since the beginning of the
current crisis.
However, there are
some clear learning’s that could protect MSMEs which survive this crisis, when
they face the next one.
Some learnings from
the crisis:
Having a footprint in
the formal sector: The biggest irony of
the situation is that although the Government has focused on MSMEs in itsrelief
packages, the benefits are unable to reach the target audience. This is because
the most-needy amongst this category are not registered anywhere, as they are
just too small in size. They do not even reach the GST threshold, which exempts
micro enterprises below a certain size. Being under the radar may be of some
advantage to enterprises in good times, as it may preclude expenses and efforts
related to maintaining accounts, paying taxes and adhering to many regulatory
norms. However, it may become a handicap in bad times as it pre-empts the government’s
ability to offer help. Lack of a formal sector presence also makes it difficult
for financiers from the formal sector to reaching out with bail-out packages
and mentorship, that could help tide over tough times.
Investing in
technology and venturing into e-commerce: At
first glance, this may seem like a tall order for smaller MSMEs as it appears
to demand large capital commitments and keeping up with digital know-how, which
may not be core to the enterprise. However, in more recent times, partnerships
can be forged that enable smaller companies to outsource activities and lease
access to digital infrastructureat variable costs, which may be more
affordable. The current crisis demonstrated how e-commerce market places
benefited and having a digital edge softened the blow of having to work
remotely, even for small businesses.
Agility in business
strategy: The current crisis
has disrupted global supply chains and investment destinations are being
reconsidered. This has unlocked numerous opportunities for enterprising businesses
to consider new or evolved products, venture into new markets and approach
investors, once the crisis abates. While there is no certain end in sight, the
interim gives MSMEs some breathing space during which strategies can be
revisited and reimagined, without losing out to competition while reinventing,
as most competitors are likely to be on their back foot too.
Opportunity amidst a
crisis
While there is no
denying the compounded hardship that the crisis has meted out to MSME, it has also presented enterprises of all sizes and from all industries
with an opportunity to step back, reimagine their businesses and reinvent
themselves in preparation for the new normal that is emerging.