13 Aug 2020 21:34 IST

How MSMEs could survive the Covid crisis

They can stay afloat by exploring the substitute-goods market and galvanising the power of community

The MSMEs form the backbone of economies all around the globe.Today, we see them grappling with the adverse effects caused by the Covid-19 pandemic. However, this isn’t the first catastrophe to have come and might not even be the last. So, how did the MSMEs survive crises in the past? What were the strategies and tactics implemented? Can we borrow a leaf out of those books and get ideas for the present?

Here are a few learnings extracted from fifteen such case studies. They span across three types of crises — financial meltdowns, natural calamities, and pandemics.

Moving up or down the value chain

A business may need to move upstream or downstream to survive a crisis. For example, retailers may have to become suppliers to service other retailers who are still in the business. There will always be some items needed to bring relief to people affected by the disaster. If a firm can re-engineer its products to cater to that demand, it is likely to thrive during the crisis. It may also earn the goodwill of those who are benefitted by the product.

Market for substitute-goods

The prices of several products may shoot up unexpectedly. It is a ripe opportunity for businesses to offer substitute products in the market. Sales are likely to go up, as the main product becomes costly and substitute products remain the only affordable option.

When incomes decline during such times, MSMEs can play on price competitiveness. They can buy supplies in bulk and take advantage of economies of scale to offer products below the prevailing market price.

Stock procurement

It may be a good idea not to let precious working capital get trapped in buying stock from suppliers as sales can be unpredictable. An arrangement can be made with suppliers to make payment for the stock as and when the sale happens.

Firing and hiring

Firing workers when your business is in a fix may lead to increased costs in the future. After the crisis ends, MSMEs will have to deal with the burden of hiring the most suitable workers in a competitive market and spend more resources training them. These costs may exceed the cost of retaining reliable workers when external difficulties occur.

Labour adjustment measures

Due to decreased production, employers can engage their workforce in training programs. When it becomes necessary to cut down labor costs, reducing pay or benefits is preferred over firing. In the past, some employers have helped their workers find other temporary employment opportunities, such as, setting up small shops.

Disaster preparedness

MSMEs need to prepare for natural calamities. All MSMEs should conduct a risk assessment of their location or geography where they do business. Once the risks, for example, likelihood of floods are known, appropriate risk mitigation measures can be put into place, such as, building dykes around factory premises, and so on. MSMEs should also look out for any micro-insurance schemes available to them by the government or other organisations. They can be used to insure them against situations beyond their control and minimise loss.

Power of community

Many individuals may find themselves out of work in times of a crisis. They may leverage others’ support to start new initiatives. Evidence shows that during an emergency, people lend support to grassroots level initiatives that may bring them relief—in the present, or avert a crisis in the future.

History shows there can be unique business opportunities in connecting small businesses so that they can come to each other’s rescue. A platform to connect such MSMEs is not just another business idea, but also is a noble initiative.

Opportunities after the crisis

A crisis has a long-standing impact and leaves multiple opportunities in its wake. Small businesses can explore business areas that help in rebuilding while also catering to the needs of the people in the new normal. In the aftermath of a crisis, when the business is looking to rebuild itself, the labor force can play a vital role. Increasing the productivity of labor by training and engaging them will work wonders for the rebuilding efforts and puts the business back on track sooner than imagined.

Staying optimistic

MSMEs should avail of all available support — government schemes, NGOs, foreign aid, and the likes. They should research and reach out when needed. Last but not least, it is best to remain optimistic. It is empirically proven to aid in decision making, too.

These recommendations can be used by MSMEs irrespective of the nature of business or the type of crisis. Their resilience in the face of adversity may give hope to a billion others to withstand the calamity.

(The writer is Gold Medalist, Integrated Programme in Management 2015-2020 batch, IIM Indore.)