Tag: small and medium-sized enterprises

Supporting Measures for Belarusian SMEs: the Context of the Covid-19 Pandemic

Posted on May 25, 2020 | Policy Brief

Image of numerous different coloured umbrellas photographed from above representing Belarusian SMEs

In the context of the evolving global economic crisis, governments are “competing” with each other in the complexity and scale of measures to support the economy and, in particular, small and medium-sized enterprise (hereafter  SMEs). The main goal of these measures is, on the one hand, to prevent a significant increase in unemployment and a consequent social strain, and, on the other hand, to ensure economic recovery driven by the most efficient enterprises.

Belarusian SMEs, which currently employ more than 1.3 million people, usually respond faster and more extensively than the state companies to the downturn in the economy by laying off employees. At the same time, they are also expected to be more sensitive reacting to governmental support policies. In this regard, the policy brief discusses the role and response of SMEs in the period of crises and delineates short- and medium-term measures.

Why are SMEs in the Focus During Economic Downturns?

SMEs often become the focus of state policy in a period of adverse and unstable economic situations and the recent pandemic is not an exception. This special attention can be motivated by the following basic assumptions:

1) SMEs are more flexible and respond faster to both negative and positive trends in the economy (Muller at al., 2018);

2) the activity of SMEs is more labor-intensive compared to large enterprises (Beck et al., 2005; Cravo et al., 2012);

3) a period of economic uncertainty creates new opportunities (new niches, exits of competitors from the market) that can be used by the most proactive SMEs (Cowling et al., 2015).

Based on these assumptions, a large share of SMEs on the one hand makes the economy more resilient in crises and, on the other hand, contributes to the volatility of unemployment. As a result, governments try to support SMEs to prevent a rapid increase in unemployment due to staff cuts and bankruptcy and, simultaneously, to maintain a competitive environment that creates incentives for innovation.

Typically, governments have substantial experience and proven tools to uphold large public and too-big-to-fail private enterprises, while supporting a heterogeneous population of SMEs requires additional study and field tests.

At the same time, the design, the scope, and the coverage of support policies should be introduced having in mind the possible reactions of various types of SMEs to the economic hardship.  Indeed, during an economic decline even in the worst hit sectors, businesses and SMEs in particular may react by implementing three basic strategies:

1) reducing costs by firing employees, cutting wages and by increasing productivity;

2) increasing revenue by introducing innovations (product, process, organizational, marketing), diversification, and entering new markets;

3) suspension of activities or liquidation of an enterprise (OECD, 2009).

Definitely, any government aims for the largest possible share of enterprises that pursue the second strategy leading to job creation and significant added value.

Policy Responses in the Period of the Pandemic

Due to the urgency of adoption and the weak predictability of the epidemiological situation, most of the proposed SME-support packages around the world are designed for the short term and are poorly targeted. Based on the study of already announced measures, the OECD (2020) has developed a comprehensive classification and sequence of SME-support measures undertaken by governments:

1. Health measures, and information for SMEs on how to adhere to them;

2. Measures to address liquidity by deferring payments (taxes, social security & pension contribution, rental, utilities);

3. Measures to provide extra and more easily available credit to strengthen SME resilience;

4. Measures to mitigate the consequences of lay-offs by extending possibilities for temporary redundancies and wage subsidies;

5. Structural policies (digitalization, training and education for SMEs, support in finding and entering new markets etc.).

Unfortunately, the government of Belarus has started discussing and implementing some of these measures only partially and in a rather non-specific way. Instead of this, we argue that all the measures should be targeted and adjusted to different sectors. To further expand and analyze our point, BEROC developed and commissioned an express random-sample survey of 100 Belarusian SMEs on April 13-27 in order to elaborate and justify relevant support measures (BEROC, 2020).

Belarusian SMEs in the Pandemic

The financial situation of Belarusian SMEs by sector and their response to the crisis manifested in implementing innovative approaches and new business models are illustrated in Figure 1.

Figure 1. Decrease of revenues and response of SMEs

Note: Area of circles is proportional to the number of SME employees in a sector.
Source: Own elaboration based on the survey.

SMEs operating in hotels, restaurants, catering (HoReCa), education, sport & leisure as well as transportation (the right lower rectangle) are characterized by a substantial decrease of revenues and low adaptability. At the same time SMEs in the communication and IT sector and scientific, technological and consulting sectors demonstrate a high degree of adaptability that may be related to some extend to managerial competencies and human capital in general which is concentrated in these sectors.

As an implication for policy makers and SMEs’ leaders, possible support measures (based on OECD classification) and business strategies are summed up in Table 1.

Table 1. Support measures and business strategies for Belarusian SMEs

Group Sectors Recommended strategy Relevant Measure (number in the OECD classification)
A. Decrease of revenues + slow adaptation Construction,

wholesale trade & retail

manufacturing

 Re-configuring supply chains, entering new niches, business process optimization 2,3,5
B. Decrease of revenues + active adaptation Communication & IT

Scientific, technological, consulting services

 Focusing on development of anti-crisis solutions in B2B and B2C segments 2,4
C. Substantial decrease of revenues + slow adaptation Transportation

HoReCa

Education

Leisure, beauty & sport

 «Conservation» or liquidation of a business 2,3,5
D. Substantial decrease of revenues + active adaptation Not identified in the survey Diversification to adjacent market segments 2,4,5
E. No changes or growth of revenue Agriculture & Forestry

E-commerce, pharmacy, online services, online games…

 Expansion to new markets while competitors are on quarantine. 5

Source: Own elaboration based on the survey.

The main measure to support SMEs in the short term (items 2-4 in the OECD classification) can be:

  • Deferral, reduction or suspension of contributions to the social security fund (groups B, C) – this will save jobs in the short term;
  • Wage subsidies that will allow paying minimum wages and keeping staff (groups A, C)
  • Rent and utility deferrals or at least payment in arrears – for groups A, C – combined with the support of building owners. This will significantly reduce costs in the face of falling revenues instead of reducing labor costs;
  • Loan holidays and preferential conditions for SMEs (group D). This will provide liquidity for enterprises that according to banks’estimates will be able to develop in the medium term;
  • Temporary repeal of fines for late payment of taxes and contribution to the social security fund (groups A-D).

As for the medium-term measures, the most relevant ones are as follows:

  • Expanding the coverage and improving the quality of business education (including digitalization of business) by means of providing vouchers and/or grants;
  • Subsidies to unemployed people for starting up a business combined with basic training on entrepreneurship;
  • Export support by developing infrastructure for certification and international marketing as well as providing export loans (Marozau et. al., 2020).

Conclusion

The Belarusian government is substantially restricted in terms of financial resources, fiscal and external debt opportunities to extensively support businesses suffering from the economic crisis. Therefore, formal and economically justified criteria for selecting sectors, as well as individual businesses and individual entrepreneurs should be developed. Meanwhile, the beneficiaries of the state support should not be the most affected businesses, but rather the most forward-looking ones. This so-called “picking winners” approach (Gonzalez-Pernia et al., 2018) would conduce to faster economic recovery and job creation driven by the private sector and, particularly, by SMEs. This is probably the main argument in favor of supporting small and medium-sized businesses in the crisis.

References

  • Beck, T., Demirguc-Kunt, A., Levine, R. (2005). “SMEs, Growth and Poverty: Cross- country evidence.” Journal of Economic Growth, 10(3), 199-229.
  • BEROC. (2020). “SME Survey Results”, Access mode http://covideconomy.by/business. Access date: May 19, 2020).
  • Cowling, M., Liu, W., Ledger, A., & Zhang, N. (2015). “What really happens to small and medium-sized enterprises in a global economic recession? UK evidence on sales and job dynamics.” International Small Business Journal, 33(5), 488-513.
  • Cravo, T.A., Gourlay, A., Becker, B. (2012). “SMEs and Regional Economic Growth in Brazil.” Small Business Economics, 38 (2), 217-230.
  • González-Pernía, J. L., Guerrero, M., Jung, A., & Pena-Legazkue. (2018). “Economic recession shake-out and entrepreneurship: Evidence from Spain.” BRQ Business Research Quarterly, 21(3), 153-167.
  • Marozau, R., Akulava, M., Aginskaya, H., (2020). “Measures to support small and medium-sized businesses in Belarus in the context of the pandemic and global recession.” BEROC Policy Paper Series, PP no.89.
  • Muller, P., Mattes, A., Klitou, D., Lonkeu, O., Ramada, P., Ruiz, F.A., Devnani, S., Farrenkopf, J., Makowska, A., Mankovska, N., Robonn, N., Steigertahl, I. (2018). Annual report on European SMEs 2017/2018. The 10th Anniversary of the Small Business Act. European Commission.
  • OECD. (2020). “COVID-19: SME Policy Responses.” OECD Centre for Entrepreneurship, SMEs, Regions and Cities (CFE). Access mode https://read.oecd-ilibrary.org/view/?ref=119_119680-di6h3qgi4x&title=Covid-19_SME_Policy_Responses. Access date: May 19, 2020.
  • OECD. (2009). “The Impact of the Global Crisis on SME and Entrepreneurship Financing and Policy Responses.” OECD – Centre for Entrepreneurship, SMEs and Local Development, Paris.

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

Does Gender Matter for the Innovativeness of SMEs?

Posted on October 5, 2015 | Policy Brief

This policy brief summarizes the results of an on-going research project on the gender aspect of companies’ innovativeness in transition countries. The aim of this work is to examine whether there is a gender gap in innovative behavior within the sector of small and medium-sized enterprises (SMEs). The results suggest that the propensity to innovate is higher among companies with a presence of a female owner.   This finding preserves for 5 measures of innovativeness. Thus, female involvement in business might be beneficial for the innovative sustainable development of economy.

The role of small and medium-sized enterprises (SMEs) has increased lately and they are considered one of the main engines of economic growth (Radas and Bosic, 2009). Research on transition economies and development has emphasized the need for strong a SME sector, since it often acts as the backbone of the economy (Lukasc, 2005) and is the largest contributor of employment (Omar et al., 2009). Another important channel through which the SME sector contributes to development is through their innovative activities. Sustainable economic development requires competitive and successful industries. Being innovative is one way to achieve this goal. However, the innovativeness of sectors and industries depends not only on the actions of the largest companies, but also on the SME sector and individual entrepreneurs. Indeed, the latter are often argued to be more dynamic and more ambitious (Chalmers, 1989; Li and Rama, 2015).

The decision to follow an innovative strategy often depends on the company’s leader, their experience and other managerial characteristics. However, the experience of the leader is not the only factor affecting managerial actions – gender also appears to matter (Daunfeldt and Rudholm, 2012). In the absence of clear answers and knowledge about female managerial characteristics, including their innovativeness (Alsos et al., 2013), it is difficult to evaluate their role in modernizing the business society and to distinguish their competitive advantages or disadvantages over male managers and business owners.

The role becomes even more ambiguous for the transition, post-communist economies. The labor market under USSR officially provided equal rights to women. However, in practice women were treated differently than men. While women often had to do the same work as men, the patriarchal society remained with men being regarded as the main decision makers, and women being fully responsible for housework and childcare. This can explain the low presence of women in top-managerial positions and women’s weaker business ties and networks (Welter et al., 2004).

The question of gender and innovation in entrepreneurship has recently starting to attract attention. Earlier, innovativeness was strongly connected and associated with high-tech companies. Thus, innovation research mostly focused on technology-based and capital-intensive industries (Dauzenberg, 2012; Marlow and McAdam, 2012). As a result, innovation behavior in less capital-intensive SMEs was almost entirely overlooked. This can also explain the lack of focus on gender, as men usually dominated the capital-intensive industries (Ljunggren et al., 2010).  In an ongoing research project, I am trying to expand the understanding of gender differences in innovation and SME entrepreneurship with a focus on transition economies and the CIS block in particular.

The idea is to estimate owners’ and CEOs propensity to implement innovations in the organization. The specification of the model follows the literature and uses a probit technique that allows for an estimation of these propensities while taking into account other influencing factors and individual characteristics of firms, their owners and CEOs, which likely affect innovative decisions. The data I use come from the 5th wave of the Business Environment and Enterprise Performance Survey (BEEPS) conducted in 2012-2013. The final dataset covered 5254 SMEs from 30 European and East Asia countries.

The main variable of interest is the innovativeness of the enterprise, proxied by 5 different indicators. The measures of implemented innovative activities are: 1) whether the firms introduced a new product or service during the last 3 years; 2) whether there was any new production process implemented; 3) whether there were any spending on research and development; 4) whether were was an introduction of a new marketing strategy and method; and 5) whether an enterprise implemented new methods in operational management. The usage of 5 indicators instead of one allows me to see whether there is any specific feature of innovativeness that differs by gender.

The list of control variables covers information on the gender of the CEO and owners, number of years of experience of the CEO, age of the firm, type of ownership, focus on internal and external markets, as well as the usage of foreign technologies and certification. I also have information on the share of skilled labor force, the share of females in the organization, and whether the organization bears additional costs on external consulting services and training of employees. Information on industry, country, size of the organization and type of residence is also available.

Unfortunately, the data lacks information on the number of owners, which will prohibit me from estimating the clear gender effects and limits the analysis to the effect of gender diversity among owners.

The obtained results (see Table 1) show that having a female as the only, or one of the, owner(s) increases the propensity of going into uncertainty and implementation of a new good/service by 4.5% in the CIS region and 6.7% in the non-CIS block. However, the effect of having a female CEO is insignificant. This finding contradicts the literature on gender differences in the willingness to take on risk (Wagner, 2001; He et al., 2007; Eckel et al., 2008; Croson and Gneezy, 2009) that mostly demonstrates that women, on average, are more risk-averse than men.

A similar effect is observed for the implementation of a new business process or marketing strategy. The only insignificant difference is the spending on R&D in CIS countries and new managerial methods in non-CIS block. However, these measures of innovativeness raise doubts regarding its applicability for SME sector. A shift from high-intense productions towards services makes it less useful to spend enormous sums of money on technological research. Instead, other innovative actions like the development of human capital are of greater importance.

Table 1. Propensity to innovate

Akulava_tab1Source: Author’s own estimation.

Conclusion

The results show that having a female owner or gender diversity in the ownership structure positively affects the propensity of the organization to follow innovative behaviors and strategies. Therefore, promoting female entrepreneurship and gender equality in ownership seem positive for increasing the innovativeness of companies, and the economy in general, in both the CIS and non-CIS block.

▪

References

  • Alsos, G.A., Hytti, U., and Ljunggren, E. 2013.Gender and Innovation: State of the Art and a Research Agenda.International Journal of Gender and Entrepreneurship, 5(3):236-256.
  • Chalmers, N. 1989. Industrial Relations in Japan: The Peripheral Workforce. London: Routledge.
  • Croson, R. and Gneezy, U. 2009. “Gender Differences in Preferences”.Journal of Economic Literature.Volume 47, #2.
  • Daunfeldt, S., O., and Rudholm, N., (2012). Does gender diversity in the boardroom improve firm performance? Department of Economics, Dalarna University, SE-781 88 Borlänge, Sweden; and HUI Research, SE-103 29 Stockholm, Sweden.
  • Dautzenberg, K. 2012. Gender differences of business owners in technology-based firms.International Journal of Gender & Entrepreneurship,4:79–98.
  • Eckel, C. and Grossman, P. 2008. “Men, Women and Risk Aversion: Experimental Evidence”. Handbook of Experimental Economic Results.Elsevier.Volume 1, #7.
  • He, X., Inman, J.J. and Mittal, V. (2007), “Gender jeopardy in financial risk taking”, Journal of Marketing Research, 44: 414-24.
  • Li, Y., and Rama, M. 2015. Firm Dynamics, Productivity Growth, and Job Creation in Developing Countries: The Role of Micro- and Small Enterprises. The World Bank Research Observer, 30: 3-38.
  • Ljundggren, E., Alsos, G.A., Amble, N., Ervik, R., Kvidal, T., Wiik, R. 2010. Gender and innovation: Learning from regional VRI projects. Nordland Research Institute, Norway.
  • Lukacs, E. 2005. The economic role of SMEs in world economy, especially in Europe. European Integration Studies, 4(1): 3-12.
  • McAdam, M. and Marlow, S. 2008.The Business Incubator and the Female High-Technology Entrepreneur: A Perfect Match? Paper presented at the 2008 International Council for Small Business World Confrence, recipient of the 2008 Best Paper Award for Women Entrepreneurship.
  • Omar, S. S., Arokiasamy, L., & Ismail, M. 2009. The background and challenges faced by the small and medium enterprises. A human resources development perspectives. International Journal of Business and Management, 4(10): 95-102.
  • Radas, S., and Božić, Lj. 2009.The Antecedents of SME Innovativeness in an Emerging Transition Economy. Technovation, 29: 438-450.
  • Wagner, M.K. (2001), “Behavioral characteristics related to substance abuse and risk-taking, sensation-seeking, anxiety sensitivity and self-reinforcement”, Addictive Behaviors , Vol. 26, pp. 115-20.
  • Welter, F., Smallbone, D., Isakova, N., Aculai, E. and Schakirova, N. 2004. Social Capital and Women Entrepreneurship in Fragile Environments: Does Networking Matter? Paper presented at Babson College-Kauffman Foundation Entrepreneurship Research Conference, University of Strathclyde.