Small firms: Little engines that could save the global economy
Small companies have taken the brunt of the COVID slump, but their agility has proven to be their greatest asset. Protecting them will be for the greater economic good.
Whether it is your local grocery store or a startup with a tiny amount of capital and big dreams, almost everywhere you look, small firms typically form the backbone of a country’s economy. Together, they employ the majority of the global workforce and tend to generate a substantial share of economic output.
But small businesses’ size and relatively diminutive political clout compared with, for instance, large airlines or banks, mean they are also more vulnerable to economic downturns than their better-funded peers.
During the 2020 coronavirus pandemic, untold thousands of small- and medium-sized enterprises (SMEs) — generally defined as firms with up to 500 employees — lived through the toughest year imaginable.
But as our series of stories in recent weeks has shown, small businesses from Minneapolis to Mumbai and beyond have used their grit and ingenuity to survive — and in some cases, thrive — in the time of COVID-19. For that, these entrepreneurs deserve respect, admiration and probably a day off, too.
Yet small businesses need more than praise. They require access to credit, technical advice and protection programmes to cope with tough times, supply chain failures and the myriad other challenges they face.
But they do not always get it. In fact, the International Monetary Fund estimates that the failure rate of SMEs could increase by almost nine percentage points without government support, according to a working paper it released in September based on data from 17 countries.
That may not sound like much until you consider the fact that globally, SMEs represent about 90 percent of all businesses, according to the World Bank.
They also account for some 70 percent of global employment and 50 percent of global GDP, the International Labour Organization found. That means an increase in small-business failure rates of this magnitude would be crushing for many millions of people.
Closing up shop
Gauging the number of SMEs that have closed up shop is surprisingly hard. Many owners apparently just switch off their lights and lock up behind them without claiming bankruptcy protection.
Data from online review site Yelp Inc suggests that more than 80,000 small businesses in the United States permanently shuttered between March 1 and July 25, according to Bloomberg News.
And most small US businesses fear the hits will keep coming. More than 62 percent of small business owners believe the worst of the COVID-19 pandemic is ahead of us, according to a fourth-quarter 2020 survey by the US Chamber of Commerce and insurer MetLife.
The developing world stands to feel the effects of the pandemic on small businesses even more acutely, as they form an even bigger component of these economies compared with those of developed nations, which is why helping small firms is a good way for policymakers to support overall employment and thus their broader economies.
More help needed
Many governments and central banks have indeed poured trillions of dollars into helping people who have lost their jobs and aid companies — large and small — that have been forced to scale back operations to control the spread of the coronavirus.
But even though more help is likely coming, some politicians are already sounding the alarm about the potentially adverse long-term effects of such huge amounts of government borrowing.
But it does not have to be that way. The IMF’s September working paper suggests public intervention, narrowly targeted at eligible SMEs, could cost a “modest” 0.54 percent of a country’s gross domestic product (GDP).
Stories of resilience
But even without outside help, the small businesses Al Jazeera has profiled in recent weeks have survived the COVID onslaught. So what traits do these stoic entrepreneurs share?
One is resilience, something you need in bucket loads if you are a small-business owner in Iran, which had suffered years of US-led sanctions even before the pandemic.
Ehsan, who makes clothes and accessories in a workshop outside Tehran, says he had become battle hardened.
“We’ve worked in the worst of markets and I’ve seen all the lows and highs in the 21 years I’ve been working, so we’re still carrying on and we’re not scared,” he told Al Jazeera.
Agility and the willingness to take big risks appear to be the other common threads running through their stories. Being able to overhaul an entire business model overnight is not something a large multinational can do, but with a whole lot of bravery, a smaller entity can pull it off.
Styro 3D, a design factory in Beirut used to make window displays and parts for movie sets out of styrofoam, including a huge Godzilla and Incredible Hulk.
But after an enormous port explosion devastated large parts of the Lebanese capital on August 4 and killed two of the Styro 3D’s employees, the company quickly pivoted to making wooden frames and doors to rebuild homes and businesses damaged in the blast.
“Don’t ask me where we got the courage to go on,” Styro 3D’s Tarek Chehab told Al Jazeera. COVID-19 and the ongoing currency crisis have added to his pain.
Quick thinking and a radical revamp also saved Albert Chen and his father, Tim’s, business in Hong Kong. Their outdoor furniture business slumped after the outbreak in February. Tim Chen decided he wanted to buy a machine from Taiwan to make surgical face masks.
“I remember my first reaction was, ‘Are you crazy?’” Albert told Al Jazeera.
They formed a new company, called MaskLab, producing myriad colourful face masks for a fashion-conscious city which sold out in minutes of their July launch online. They have since opened their fourth shop and are also selling overseas.
If you operate a neighbourhood grocery store, knowing your customers well does not just make you popular. In a crisis, it can save your livelihood.
That was the secret behind the survival of two grocers we met.
In the small town of Wigston in the United Kingdom, Pratik Master used social media to reach out to his customers. He took requests for goods that the local supermarkets were running out of in the early days of the outbreak and delivered them to his customers’ homes.
In Pakistan’s capital, Islamabad, Aamer Khattak used a similar strategy to save his 20-year-old business, though he went old school, taking orders by phone and giving credit to those who needed it.
Elsewhere in Islamabad, other entrepreneurs embraced mobile phone apps to launch startup grocery delivery services.
Technology also helped entrepreneurs we met in India.
Manohar Wagle, the fourth-generation, 62-year-old proprietor of the 155-year-old Wagle Sports shop in Mumbai, was forced to embrace WhatsApp and GooglePay to keep his customers supplied with equipment to keep them fit and sane while they endured one of the world’s toughest coronavirus lockdowns.
Meanwhile, in New Delhi, Meghana Narayan and Shauravi Malik moved their business manufacturing organic baby foods entirely online, eliminating their third-party store network and letting go more than half of their staff of 45 people.
But for Eugenia Santome of BeWe Home, a small firm that produces frames, boxes and other home decor items made from recycled wood in Argentina’s capital, Buenos Aires, eliminating her 20 employees was not an option.
Ahead of the country’s lockdown in March, Santome told her staff to work as if there was no tomorrow.
A few days later, she pooled all the money she had in the family-run company she founded and summoned her staff again.
“I said, ‘Take this money. It’s not your whole salary, but take this money and don’t pay off anything. Just use it to buy food,’” Santome told Al Jazeera.
BeWe Home was able to get back to work 15 days into the lockdown because it fell under the umbrella of “essential” companies that manufactured wooden pallets. Government aid eventually arrived, but until then, Santome used her own credit cards to pay salaries and buy raw materials.
So far, everyone at the company has been able to keep their job.
And in Minneapolis, Minnesota in the United States, small business owners weathered not only the pandemic but the civil unrest following the killing of George Floyd, a Black man, by a white police officer. The entrepreneurs we spoke to chose to use rebuilding their businesses as an opportunity for social change, too.
Lee Wallace, the owner of Peace Coffee, a roastery dedicated to selling 100 percent organic and fair-trade coffee, realised she had something valuable to donate to her community: Physical space.
After switching to online orders, she decided she did not need her physical cafes any more, so she leant two of her spaces to a local food bank that feeds 100 families per week.
Two other former Peace locations will be used by Wildflyer Coffee, a nonprofit dedicated to providing job stability and skills development to youth experiencing homelessness.
“It’s always been about community, but in an even more direct way,” Wallace told Al Jazeera.