Small Firms in Survival Mode Try to Outlast Virus Lockdowns

(Bloomberg) --

In the world of business, it’s small- and medium-size enterprises that will be worst-hit by the effects of Covid-19, and almost half fear they will fail within three months.

That’s the grim assessment in a note by the Organization for Economic Cooperation and Development’s Centre for Entrepreneurship, which says a widespread collapse of smaller operations could have a strong impact on growth prospects, expectations and even have systemic effects on the banking industry. 

Ernie Koh, the sales and marketing executive director of furniture company Koda Ltd., has had to steer Koda’s manufacturing division into “survival mode” as worldwide demand has dropped by 50%, slashing workers’ overtime pay and incentive allowance.

The pandemic is reminding him of the importance of diversification in the firm’s supply chains, markets and manufacturing bases, as well as solid relationships with partners across those networks.

Koda — founded by Koh’s father — was operating by these principles before Covid-19 blew up the day-to-day playbook. The company had reduced its reliance on Chinese supplies to about 40% from 70% as sourcing from elsewhere, including Malaysia and Vietnam, became more competitive. “One small missing part, like a screw, is enough to cause shipment issues,” he said.

The virus outbreak has meant a doubling-down on some of those ideals, most especially leaning on partners throughout the supply chain for the collective survival, said Koh, who serves as vice chairman of the Singapore Business Federation’s committee for small and mid-size firms.

Small Firms in Survival Mode Try to Outlast Virus Lockdowns

“The relationships that were built over the years are being tested,” he said. “Good customers and suppliers will work closely with each other, helping each other out to ensure the survival of all.”

According to a survey released Thursday by the Asian Trade Centre, most small- and medium-size firms in Asia have “no more than two months of cash reserves available. The rapidity and depth of this crisis means that many have already run out of money.”

A different poll, reaching 235 chief supply-chain officers in 23 countries by New York-based consulting firm Egon Zehnder, found that only 38% of respondents agreed or strongly agreed that their supply chain had adequate resources to meet future challenges — and the study was undertaken before the onslaught of Covid-19. When they were canvassed again in early March, 60% said it would take more than three months to recover from the impact of the crisis.

Koda’s employees are working from home and Singapore’s government has just extended, through June 1, a “circuit-breaker” period of tightened movement restrictions amid a resurgence in the city-state’s confirmed cases. Koh sees silver linings for business in the crisis, including cheap merger and acquisitions opportunities, government support for industries, and potential for improvement in health-care infrastructure.

“This is the time when relationships will continue to be built and when we all pull through this, our relationships with our stakeholders will even be stronger,” he said.

Charting the Trade Turmoil

Small Firms in Survival Mode Try to Outlast Virus Lockdowns

The number of North American train carloads dropped for a seventh straight week, according to the Association of American Railroads. That's the longest skid in records dating back to 1999.

Today’s Must Reads

  • 25 million battles | The economic pain is clear in countless stories across Europe, from business owners furiously fighting to stay afloat to those who’ve lost hope.
  • Restart your engines | Volkswagen, Renault and Daimler are restarting factories in Europe with little visibility about how much actual demand will exist when customers emerge from lockdowns.
  • Stormy times | As the pandemic strains the world’s food supply chains, there’s one important factor that’s even harder to control than panic buying: the weather.
  • Microbes and whatnot | A San Francisco-based company called Phylagen uses a kind of DNA analysis to verify whether products came from the locations where suppliers say they did.
  • Paying the price | Hundreds of thousands of tons of spoiling rice at ports in Vietnam, the world's third-biggest exporter of the grain, show the dangers of curbing movement.
  • Container decline | Warehouses are so full of goods that retailers are asking shippers to delay deliveries, which may drag global container shipments down as much as 30% in the next few months.
  • Stephanomics podcast | Stephanie Flanders talks to Bloomberg Beijing bureau chief Sharon Chen about her recent visit to Wuhan and her subsequent 14-day quarantine when she returned home.

Bloomberg Analysis

  • Post-lockdown scenarios | India’s recession will probably start with a precipitous plunge in GDP this quarter — 25% year on year by Bloomberg Economics’ estimates.
  • Exposed | Britain’s economy will shrink by the most in nearly a century as measures aimed at getting the pandemic under control shutter shops, offices and factories. 
  • Use the AHOY function to track global commodities trade flows.
  • See BNEF for BloombergNEF’s analysis of clean energy, advanced transport, digital industry, innovative materials, and commodities.
  • Click VRUS on the terminal for news and data on the coronavirus and here for maps and charts.

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.