Pandemic sees rise of competitive, adaptive ‘new normal’ SMEs—report

The pandemic has had a huge adverse impact on small and medium-sized enterprises (SMEs), but it has also seen the emergence of “new-normal” SMEs—agile enterprises that are competitive, profitable, and adaptive to a changing market, according to a new report.

Sadaf Zahoor, an associate professor at the University of Engineering and Technology in Pakistan, said the pandemic has undoubtedly badly hurt SMEs, pointing to studies showing that the lockdowns seriously limited their business activities and immediately reduced their incomes and profits, especially for MSMEs engaged in personal contact-based services.

“There was little or no demand for their products and services, and maintaining working capital was a major challenge in sustaining or reopening businesses. Women-owned firms were more seriously affected in sales, income, and access to funds in each country,” Zahoor said in a new publication entitled “Competitive, Profitable, New-Normal SMEs” and published by the Asian Productivity Organization.

But the changing economic winds also ushered in the arrival of the new-normal SMEs, which are enterprises that have a competitive edge in their market, generate a profit, and are able to sustain themselves through periods of economic turbulence.

“The global economy is going through a period of unprecedented volatility. In emerging markets, weaker competition has created opportunities for SMEs to thrive. New-normal SMEs have been able to survive the economic downturn, becoming more competitive and profitable than ever,” Zahoor noted.

Nonetheless, SMEs continue to face a number of challenges that undermine their resilience, including a lack of access to capital, limited access to new technologies, weak infrastructure, lack of skilled labor, and limited access to markets.

“All these factors can lead to high risks for SMEs due to their small size and insufficient resources,” Zahoor noted.

To assist the evolution of competitive, profitable, new-normal SMEs, the report recommends supportive policies and regulations that ensure SME access to finance.

“Access to finance is a key prerequisite for SMEs to grow and compete in today’s internationalized economy. The challenges faced by SMEs stem from the fact that they have limited access to capital as well as difficulties in accessing markets, which are often dominated by large corporations,” said the educator.

The paper also stressed the need to promote the adoption of digital technology and greener business practices among SMEs.

This will helps owners and employees of SMEs to develop their digital skills; build new, robust regulatory frameworks; enhance digital connectivity and high-speed networks; and promote green behavior of SMEs by providing financial, sector-specific technical assistance to companies introducing green practices.

Another suggestion is to foster the creation of a culture of innovation and inclusive entrepreneurship, encompassing the vulnerable segments of the SME community including women, minority groups, the youth and the elderly. Senior entrepreneurship in particular will help to increase older people’s awareness of entrepreneurship as a late-career option and promote a positive image of older people as entrepreneurs, said Zahoor.

She also pressed for state support for self-employment: “Self-employment can be encouraged under tax-financed social security systems by promoting the formalization of informal businesses, especially in economies with large informal sectors. Additionally, public policies in support of SMEs can reduce barriers to their formalization and improve their competencies and productive capacities.”

Zahoor likewise said SMEs must be encouraged to internationalize and become part of global value chains, and to enhance their skills through the promotion of quality education systems for individuals of all ages and adoption of well-designed qualification frameworks.

The paper also sought the reduction of administrative burdens on SMEs throughout the recovery phase in the new-normal era.

On the part of SMEs, the paper said their success in the new normal can be enhanced through reinventing their business strategies for recovery and growth. A new-normal SME has to adapt to a changing market. This includes changes in the economy and how consumers access information.

“SMEs must be strategic and think about how they can keep up with shifting trends to stay competitive,” Zahoor added. “After stabilizing their business operations in the new normal, SMEs can strategically explore expanding their businesses across borders in the medium to long term.”

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