By Mrs. Toki Mabogunje,
There is perhaps no better timeto focus on business survival in challenging times than now. Moments like these could also be a good test of entrepreneurial competencies of business owners. The truth is that not all business owners are entrepreneurs. I expect that knowledge gained and experiences shared at this virtual conference will equip business owners with the requisite knowledge for developing strategies and building strong mechanisms that will enable them to ride through the economic storms resulting from the Covid 19 pandemic. During the COVID 19 pandemic, the combination of an acute health crisis and an abrupt economic slowdown has had a major impact on the global economy. In its world economic outlook released in April 2020, the International Monetary Fund (IMF) forecasts an aggregate contraction of 3% across the world in 2020. The IMF warns in its report of severe risks of a worse outcome if the pandemic does not fade in the second half of 2020. The United Nations Conference on Trade and Development (UNCTAD) estimates that cross border investment flows will plunge by as much as 30% to 40% in 2020 to 2021.
As you may be aware, Micro, Small and Medium-Sized Enterprises (MSMEs) were severely impacted by the Covid 19 pandemic and associated containment measures. Although the challenges experienced by MSMEs are similar to those experienced by Large Businesses, MSMEs are more vulnerable to them. The impact was more profound for MSMEs because of their weak financial buffers to withstand the shocks of this crisis. Shocks from sharp declines in sales, escalating costs, stagnating economy, declining revenue, increasing receivables, supply chain disruptions precipitated an unprecedented crisis for business operators in this segment.
MSMEs tend to rely on a narrower supply base and are less able to switch suppliers quickly if the COVID 19 containment prevents them from accessing essential inputs. They tend to have fewer assets and less cash than larger businesses and find it more difficult to access credit. This means that sudden and prolonged drops in revenue can rapidly turn into a cash crunch. Reports from various organizations revealed that MSMEs lost millions of naira in revenue to the total and partial lockdown. A recent survey conducted by the Lagos Chamber of Commerce & Industry in the month of April 2020, unveiled that 83 percent of businesses operating in Lagos, Nigeria are severely affected by various Covid 19 containment measures. The impact was even more pronounced on businesses that failed to digitize their operations.
Developing and Transition Economies (such as Nigeria) are more exposed to the economic fallout from the crisis, including the fall in commodity prices (such as crude oil in the case of Nigeria), capital flight, a collapse in remittances (as the diaspora in developed countries lose their jobs). Developing and Transition Economies such as Nigeria, are further disadvantaged by the high rates of informality; 69.9% of workers and 82.5% of businesses are informal according to the latest statistics collected by the International Labour Organisation (ILO 2018).
The fact of the matter therefore is that a majority of the MSMEs in Nigeria operate their businesses in the informal sector of the Nigerian economy. This being the case, many of these MSMEs will find it difficult to access government sponsored support programmes for the sector. We must however acknowledge the various intervention measures by the Federal and State Governments as well as the Monetary Authorities in Nigeria to mitigate the economic fallout of the crisis. Neither the prevailing economic conditions nor short-term outlook is favourable for MSMEs. Projections are that economic contraction is unavoidable by year-end. These realities underscore the need for micro, small and medium-sized business owners to strategically position themselves for continuity in this challenging period and brace up for the challenges ahead.
Looking specifically now at Small and Medium Enterprises (SMEs), it is particularly important for us to know that amid these challenges and uncertainties in the global and local economy, lie unexploited opportunities. Identifying, utilizing and leveraging these vast opportunities require business owners to be visionary, farsighted and futuristic in their approach. Business models have to be reviewed to reflect prevailing realities and consumer preferences.
It takes good entrepreneurial insights and skills to transform challenges into opportunities. Without these attributes, it would be difficult for SMEs to chart a new course for their businesses and position themselves for emerging opportunities.
Let me share some tips on positioning and thriving as an SME in tough economic times. I will first share tips on leveraging your strengths as an individual and a business leader and then some survival strategies for the business of the SME in these challenging times.
The Entrepreneur and Business Leader
As a leader of your SME business it is important that you have the ability to remain calm at a time of Crisis. The capacity to handle stress and remain calm and focused in the midst of chaos will engender hope within your workforce. It will enable the business to continue to maintain order in its operations and restrain from a fire brigade approach to solving problems. This calm demeanour will enhance your decision making abilities. Your ability to quickly make the right decisions in the face of difficult circumstances and also make the hard decisions to make progress at a time like this will be critical to your business operations.
You should be Goal-driven in your orientation. Your skilfulness at establishing short, medium and long-term goals with specific objectives, assigning them to staff and ensure follow through will be critical to surmounting your varied challenges during this period. If you are a good coordinator and can quickly organize cohesive teams that are well-suited for the tasks at hand, you will be enabled to be flexible in deploying your staff as required to handle specific challenges at hand.
In this time of crisis, strong communication skills are essential. The ability to show care for your staff and develop deeper customer relationships through improved and effective communication will help in sustaining your operations and your existing client base. Effectiveness at interacting with groups and individuals in a wide variety of contexts and situations, including marketing and clearly and concisely sharing important information is valuable at times like this. If you are an able facilitator with an understanding for how to effectively gather input from individuals and groups and facilitate collaborative decision making, this will greatly improve your business processes.
If you are a good listener, with strong active listening skills, it will help you handle cases of staff who need strong emotional support as they deal with the challenges of the new responsibilities which come with working remotely, while schooling children at home. Some staff may be battling with depression arising from their financial condition or response to social distancing, where they are missing the social comforts that come from family and friends. As a good listener you should have the capacity to digest large amounts of information from different viewpoints. Having an open-mind with the ability to look at challenges from multiple perspectives and “think outside of the box” before deciding on specific contingency plans and solutions will prove extremely valuable to you in these trying times.
With the strategies for SME businesses, I will advise :-
Incorporate technology in your operations
Traditional business models are losing relevance and facing increasing challenges of competitiveness given the fast-changing dynamics in today’s business environment. It is imperative that SMEs adjust their business models in line with current realities while ensuring such models are technology driven. A big lesson from the covid-19 disruption is the need for SMEs to leverage technology to improve on the quality of their service delivery while sustaining relevance and competitiveness. SMEs should incorporate remote working arrangements by leveraging information and communication technologies, such as teleconferencing software, instant messaging services, cloud based file sharing systems, collaborative work apps etc. Staff should be empowered by offering them tailored training programmes. Where remote working is not feasible businesses should take common sense precautions to ensure workspaces are hygienic and safe. Although these measures may imply additional costs in the short run, they will reduce a small businesses costs in the future. Adopting technology in your business operations helps you optimize costs and expand your customer/clientele base. Technology driven firms have a better chance to survive and thrive during this critical period.
Flexible Management Approach
Adopt a flexible management approach to keep tight control on cost and non-revenue-generating segments of your business. Flexibility helps business owners to adapt to dynamics. SMEs can free up liquidity trapped inside the business to increase their chances of survival and improve resilience and sustainability. SMEs can do this by introducing cost reduction measures, negotiating new terms with input suppliers and service providers, reviewing portfolios of receivables and offering discounts for early payment to large buyers. It also enables SMEs to revise their plans by incorporating new innovations while staying on course to achieve sustainability. Some SMEs have chosen to adapt their business models temporarily to cope with the crisis. Restaurants are experimenting with direct home deliveries; Hotels are accommodating health workers who do not want to return home and contaminate their homes; The apparel industry in several countries have reorganised to produce Personal Protective Equipment (PPEs); Other manufacturers are producing ventilators or ventilator components. Some businesses unable to adapt have loaned their staff to other’s who are experiencing a boom.
Supply Chain Review
SMEs should reconfigure their supply chains possibly through backward integration for inputs that could be sourced locally. Practice import substitution to wean the business of imports, where applicable, and mitigate the risks which arise from global supply chain disruptions. Frequent and frank communications with suppliers, customers and service providers such as transport companies and banks will determine whether an SME can ensure business continuity. By having control on significant portions of the supply chain, SMEs can bring down costs while ensuring improved efficiencies in operational activities.
Maintain healthy cash flow
As the saying goes, ‘Cash is King’, cash flow is the lifeblood of any business. To ensure the business is healthy, SMEs need to keep an eye on their cash flows. Besides the objective of generating more sales which leads to greater increase in cash flows, you must know how to manage cash. This handy skill ensures you maintain a consistent cash flow which will result in a healthy cash balance. Many Banks are providing short term loans or allowing re-negotiation of payment terms. SMEs may also focus on product and service lines that provide the quickest access to cash, even if they are not the highest value. Additionally, SMEs should try as much as possible to minimize credit sales as it could severely affect cash flows. Informal businesses and those not connected to formal financing networks should reach out to understand government support programmes and take the necessary action to benefit from them.
Prioritise main competencies
It is important for SMEs to focus on their core competencies to strengthen their competitiveness. Business owners should not get involved in too many things or products to avoid being thinly spread and possibly losing focus. This can damage the core business by taking valuable time and resources and putting them into less important activities. Your brand and reputation could be affected. Identify your core business and focus on it.
Capitalize on existing customers while chasing new ones
There is a saying that a bird in hand is worth two in the bush. Your existing customers are an opportunity to make more sales without the extra costs of soliciting for new customers. Some of your existing customers, especially the loyal ones, provide more sales opportunities. While striving to have more customers and expand your clientele base, never stop giving your best to your existing customers.
Do not cutback on advertising & marketing
During tough times, many SMEs make the mistake of cutting their marketing budget. It is during tough times that consumers are restless and contemplating adjusting their buying decisions. This is the moment to help them find your products and services. Therefore, do not quit marketing, instead step up your marketing efforts. Use technology. Engage in digital marketing.
Stay Informed
SMEs should keep abreast of the latest developments and related information in their respective industries. Such information is critical to business planning and strategy and could further enable the business to take quick advantage of new opportunities in their sector. Information also helps the business make projections on several parameters such as profitability, cost efficiency and competitiveness.
Manage your inventory cost
SMEs must regularly review their inventory management practices. Look at what can be done to reduce inventory cost without compromising on the quality of goods or inconveniencing customers. Could an item be purchased from another supplier at a better price? Are there alternatives that could help reduce costs? Is any item overstocked? You do not need to keep ordering certain items from a specific supplier or do things in a particular way. If a different alternative could save you money, why not do it differently? During tough economic periods, it is always advisable that business operators assess their supply chains and create alternative supply sources.
CONCLUSION
In conclusion let me say that SMEs must strengthen the resilience of their businesses. This may imply refocusing on local or regional value chains as well as import substitution. Sustainability of the SME business must be paramount. This could include optimisation of energy consumption, the use of smart technologies, and careful monitoring of operational cost savings. SME businesses must be more inclusive going forward. Employers have to be more conscious of how they relate to their employees. Stakeholders may push for a more inclusive, safe and humane way to relate to staff. Evidence shows that well treated workers are more productive. SMEs must adopt technology and digitise their businesses. Product based businesses may offer entire product portfolios online. Service providers may provide productised and simple to buy online service packages. Digital facilities will no longer optional. Consumers, clients, business partners may come to expect them as a matter of course. Cash payments and paper based documents may become a thing of the past. E-Commerce has accelerated and may boom after the crisis.
For additional support, SMEs should seek support from Chambers of Commerce, Export Promotion Agencies, Sectorial Associations and other support organisations, which can offer advice on government support and advocate on their behalf. Now more than ever it is crucial that SME businesses and their representatives take advantage of public-private dialogue forums and consultation mechanisms to make their views known to policy makers and regulatory authorities.
I appreciate the organizers for putting such an informative and educative programme together. To our esteemed audience, I say thank you all for your kind attention.
Mrs. Toki Mabogunje, is President, LCCI
