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Talking Trade blog

Shattered and shuttered


Published 23 April 2020

The COVID19 situation is rapidly upending the business world everywhere. There are, as we have noted before, multiple challenges all underway at once.

In addition to direct lockdowns in various locations of citizens and staff, firms are grappling with collapsing demand for goods and services.  Even if demand remains strong, supplying goods and services is increasingly difficult.  Key parts are not available.  Services suppliers cannot arrive to sort out specific issues.  Logistics is snarled with rapidly rising costs.

Even in firms that are set up to be fully remote and digital, employee productivity is likely taking a nosedive.  Contracts are getting canceled and payment terms extended. 

All this chaos has upended growth prospects for millions of smaller firms.  

Some challenges for small firms are obvious.  The bubble tea shop in Singapore, as an example, was already suffering from declining sales after months of increasingly tight movement restrictions.  The announcement of a 6 week closure of all bubble tea shops, along with cake shops and other specialized food and beverage stores, is likely to push many companies right over the edge.

As our survey indicated, most Asian SMEs have no more than 2 months of cash reserves available.  The rapidity and depth of this crisis means that many have already run out of money.

Governments can step into the breach, providing a wide variety of temporary support measures.  Many of these programs will provide a critical lifeline to firms, like the bubble tea shop, facing a liquidity crisis.  Although many patterns of behavior will likely change in the wake of the coronavirus, demand for tea will probably return.  Hence, most tea shops may need only a temporary infusion of cash to cover running expenses and will survive.

Smaller firms are well-known for their ability to pivot quickly.  Many are having to do so on a weekly or even daily basis.

One AMTC company has seen demand for its key product collapse.  The item is simply too difficult to sell online.  However, it has a second line of business which it has been able to adapt to online sales. 

The problem for this firm is that the area that continues to sell does not involve the same level of profit margins.  Hence, even more sales are not enough to offset the revenue losses from the other half of the business.  They have cut operating expenses as quickly as possible and hope to survive long enough to return with both sides of the company working as intended.

Another AMTC firm, in catering, might be expected to do poorly.  After all, demand for catering at hotels and events has collapsed.  But they have two things that have helped them survive and even thrive in the virus.  First, they are also catering for companies that have been deemed “essential.”  Demand for their food and snack packs for workers in these firms is skyrocketing.  Second, they are part of a larger network of firms—drawn together by a common investor structure.  The network is trying to support one another by buying only goods and services, wherever possible, from within the network companies. 

Many SMEs are not in this happy set of circumstances.  They face multiple challenges. 

First, while nothing is selling, bills continue to mount.  Government aid packages that do exist often are inadequate.  The money will take too long to arrive, is too limited, comes with conditions that are too onerous to meet, or are simply measures that delay payments. 

Delayed or deferred payments, like taxes or tariffs or even rent, is certainly preferable to payment demanded immediately.  But unless these companies experience positive cash flow quickly, delayed payments only postpone the eventual collapse.  Worse, when such delayed payments are due for things like taxes, the bill might arrive all at once, leaving firms grappling with multiple months of payments at the very moment when they might finally be experiencing some positive financial news.

Second, for many SMEs, the collapse in demand is likely to be permanent.  Even an amazing government support package cannot hide the fact that the firm will not be solvent again. 

Some cases are obvious—travel and tourism is unlikely to pick up in the same way at the same volumes as before.  SMEs that cater to tourists and business travelers are unlikely to survive long enough to offer their goods and services again before a lack of cash flow causes them to close.  Even rich governments are not going to be able to provide the volume and level of support needed to survive for long periods with no revenue coming in.

Telling smaller firms to “get online” will not work for everyone.  Even if firms have the capabilities to do so, if no one is buying the goods and services on offer, a digital presence is not a panacea. 

We don't yet know what consumer and business appetites will be in a post-virus world.  Many previous purchases will never return as people shift their focus.  Restaurants that hang on, for instance, may not get the same level of customers needed to support the business.  Some SMEs will pivot effectively, but many will not.

Other firms are going through the painful steps of shutting their doors because demand will not come back.  This includes potentially less obvious companies in areas like sustainability.  While many may dream of a post-virus world more focused on climate-friendly initiatives, it is highly likely that cash-strapped firms will dump future sustainability investments faster than core needs like salaries. 

Given the short runway of cash for SMEs, even if sustainability comes back onto the purchasing agenda for larger firms, contracts will take too long to arrive in the bank accounts of smaller firms.

So what happens to all the employees in SMEs?  They are going to end up tossed out into the unemployment lines at the same time that job hiring is, at best, frozen in most firms.  Many will need to be retrained for potential future positions.  

Even if the virus were halted tomorrow, the economic damage to smaller firms is substantial.  Too many businesses that were doing well and planning for bright futures are looking at shattered plans and the likely possibility of closure.  

All this suffering makes for grim conversations and unpleasant reading.  But it is important to recognize the reality of the moment and stop hoping that “warmer weather” or some miracle will reset things to normal.  We are in for a prolonged period of economic pain.  SMEs are simply at the leading edge.

© The Hinrich Foundation. See our website Terms and conditions for our copyright and reprint policy. All statements of fact and the views, conclusions and recommendations expressed in this publication are the sole responsibility of the author(s).


Dr. Deborah Elms is Head of Trade Policy at the Hinrich Foundation in Singapore.  Prior to joining the Foundation, she was the Executive Director and Founder of the Asian Trade Centre (ATC). She was also President of the Asia Business Trade Association (ABTA) and the Board Director of the Asian Trade Centre Foundation (ATCF).

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