How Can We Help Small Company Impacted By The COVID-19 Crisis

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Obstacles facing small companies

How big is the coming wave? The world as a whole is most likely to participate in an economic downturn 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, lodging and food services sectors being hit particularly hard. Businesses themselves are likely to take a trip through a four-phase process: shutdown, supply-chain disturbance, demand depression and lastly, healing. The seriousness and interruption triggered by each phase of the process will depend on the policies adopted by governments. We understand the impact will be extreme; what we do not know is for how long the crisis will last.

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

1. Collapsing demand and access to liquidity. Demand has plunged for business and business owners we support-- even in product sectors-- and some buyers are slowing payments for orders currently received. MSMEs have little money reserves, and therefore fail first in a liquidity shock. Services who trade globally are specifically vulnerable, as they depend upon access to progressively limited US dollars to money a range of their expenses.

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

3. Managing the work environment. For manufacturing MSMEs in lockdown situations, staying open is challenging as factory floors are not designed for social distancing. Massive outmigration from cities has actually indicated employees have vanished and they might be challenging to remobilize. Numerous nations have actually suspended assistance to farmers even as the agricultural calendar continues.

4. Policy unpredictability and interrupted supply chains. Policies are progressing quickly. MSME managers often work alone and can not develop crisis teams to track modifications. One of our clients reports having a delivery of fresh produce grounded at an airport since passenger air travel has stopped. Supply chain disruptions such as grounded airline companies produce substantial liabilities.

5. Accessing emergency situation support: A lot of the small businesses we support are on the edge of the formal economy or trade informally. They rarely make use of federal government assistance and fairly few get involved in networks of federal government assistance institutions. As governments put together emergency support, reaching these companies and finding methods to help may be difficult.

Reactivating service linkages

When the crisis passes, our beneficiaries will expect us to be ready to help them reconnect with buyers, re-hire personnel and re-launch production. It is prematurely to draw lessons however these are our recommendations, based upon early suggestions from the field:

Customize the playbook (and listen). Like other technical assistance providers, a number of LCGC's projects helping MSMEs have stiff targets and work strategies that did not prepare for such a shock. We should customize these strategies, listen carefully to MSME managers and governments on what they require-- and discover methods to get it done. For example, our coworkers are currently dealing with a garments market association in Africa to develop a healing strategy, with the active support of the funder.
Be ready with data. Global worth chains represent a substantial percentage of trade and link to countless MSMEs. LCGC is using networks within these chains to determine the impacts of the crisis and is making the analysis available to choice makers and companies. The key is to time studies so they do not disrupt partners while they address instant concerns.
Develop (re-build) the environment. MSMEs need service support companies now more than ever. Governments also require an ecosystem that can deliver much required aid to their MSMEs. LCGC's institutional strengthening group is linking trade promotion organizations from across the world to share emerging good practices and resources for small companies such as market details, so they can learn from each other in genuine time.
Think worth chains and alliances. Actors across whole value chains need to collaborate to bring back trade. LCGC, for instance, is working to keep the discussion in between purchasers and suppliers.
Focus on financing. Because few of LCGC's recipient companies receive formal financing, they might be excluded when governments and global loan providers use emergency liquidity. LCGC is working with trade finance suppliers, regulators, guarantors, buyers, and suppliers to incorporate MSMEs into affordable financing networks.
It is important we start these procedures as quickly as possible, going virtual where we can. Some of LCGC's teams in India have actually found methods to help small companies from a range, through mentoring start-ups essentially, performing virtual beginning objectives and even providing early grants to keep them moving. More importantly, LCGC's field teams have rapidly increased their role in collecting data, providing services and maintaining relationships with our customers, which will be more critical than ever in our response.

In numerous cases, our MSME beneficiaries are succumbing to the immediate results of COVID-19. When they are ready to talk about healing, we require to be prepared and respond quickly.