How SMEs can survive a longer pandemic

The first half of the second year of the pandemic does not seem to indicate that it will be over soon. New strains have begun to sprout up and there are fears about the efficacy of the available vaccines. Some strains are believed to have increased potency and spread faster. As a result, a number of countries have imposed new measures to prevent the spread of these strains.

In Southeast Asia, Thailand and Vietnam have faced increased infection rates after successfully curbing the virus in 2020. Singapore and Malaysia are also facing similar challenges, and now, these countries have imposed movement restrictions to prevent further contagion.

While mobility restrictions are necessary during the pandemic, the challenge with these measures, such as lockdowns, is that it hurts the economy and businesses badly. In 2020, Indonesia — the largest economy in ASEAN — fell into a recession even after going through several models of movement restrictions to keep the economy running. Other countries have dealt with a significant decline in growth. Many businesses have suffered, especially those in the travel and tourism industries.

There are lessons that we can gather from how businesses have struggled to survive in the first year of the pandemic in Southeast Asia.

First, a few studies have indicated that the digitalization of business operations serves as a major factor in helping businesses to survive during the pandemic. For example, moving from brickand-mortar shops to e-commerce helps businesses sustain themselves despite movement restrictions. Small businesses in Indonesia have shown resilience by tapping into various e-commerce platforms such as Tokopedia and even social media sites like Instagram, etc., to keep their shops running.

Second, those who have attempted to pivot and offer new digital value propositions during the pandemic have tended to accelerate the learning process and move ahead of their competitors in acquiring new digital capabilities. Digital transformation is an investment in the future. Even if businesses fail to implement digital transformations during this difficult period, they will slowly build digital capabilities that are useful for the future. This is important because the digitalization of small and medium enterprises (SMEs) helps to boost the economy. A 2020 study found that the digitalization of SMEs could add between US$35 billion and $41 billion to Thailand’s economy by 2024.

The third lesson is that retrenchment strategies — that is, continuing to operate and reducing costs as much as possible — work because they signal that businesses are resilient and maintain consumer trust. But this type of strategy can only be done by medium or big businesses backed by strong capital. Thus, it is a luxury that many small businesses cannot afford. This is unfortunate because small business make up the largest proportion — 89 to 99 percent — of all businesses in Southeast Asia.

Thus, small businesses need to transform their configurations to adapt to the possibility of a longer pandemic. What are the potential business models for them to survive from 2021 onward?

The first is to engage in digital business model innovation. Small businesses need to go digital and innovate as soon as possible to sustain their business. The innovations can be as simple as selling products on existing e-commerce platforms or creating new digital value proposition for existing or new customers.

One of the examples of the latter type of digital innovation strategy are the virtual tours conducted by the Guggenheim Museum in New York City. The museum provides virtual tours for students and visitors who cannot physically visit it. This model has started to be tested in tourism as well, as people are traveling less and tend to do leisure activities with their families near their homes. Virtual tours have become more popular among students and young people.

The second option is to develop the trust-bubble model. Even countries with high COVID -19 vaccination rates like the United States fear that the herd immunity might not be reached. This may imply that COVID-19 is here to stay and that people need to live alongside it. A trust-bubble model, where businesses create “safe bubbles” for customers to enjoy their services, might therefore be a solution.

Several experiments to create safe bubbles have been implemented. The Netherlands and Spain held musical concerts where participants were tested for COVID-19 prior. The result was zero infections afterward. This model will create trust among customers. Visiting business premises that apply safe bubbles like this will be all right and safe for them.

Similar models can be applied to restaurants, tourist destinations, gyms and other businesses that require close physical interaction. Of course, the challenge would be to find a balance between the costs of health protocols (antigen swab testing, etc.) and the price that customers are willing to pay.

The implementation of these models requires government support. For example, digitalization policies that help businesses undertake their digital transformations faster are very important for SMEs in ASEAN countries. Access to capital and loans is also important, since small businesses need to get appropriate financial resources to pivot and establish these new business models.

Finally, technical assistance to help small businesses navigate the turmoil is no less important. Governments in ASEAN countries should continuously provide evidence-based insights and training to small businesses to help them cope with the continuing uncertainties.