How COVID-19 Changed the Playing Field for European SMEs

In the ever-evolving landscape of economic crises, after the COVID-19 pandemic, a notable shift has occurred. These new crises that businesses are confronted with are no longer confined to traditional financial or industry-sector troubles but have transcended boundaries to manifest as productivity disruptions across multiple sectors. This shift poses a formidable challenge as it becomes increasingly difficult to isolate a crisis to one well-defined industry sector like what happened in the crisis of 2008. In this context, the study conducted on behalf of the European Economic and Social Committee “Crisis Costs for European SMEs” seeks to shed light on adaptation factors that determine the fate of SMEs during prolonged productivity crises, offering valuable insights for future policymaking. On September 20, 2023, INSMEAcademy hosted an insightful webinar on this study and its insights, inviting speakers Dr. Francesco Camonita from Wise Angle, alongside CEO of SHINE 2Europe Carina Dantas, to discuss their findings.

The study’s central premise revolves around identifying the effects of COVID-19 on SMEs around the EU and “winning” and “losing” adaptation factors of SMEs across various sectors. Instead of focusing solely on specific industries, it delves into the broader landscape of adaptation, providing a more nuanced perspective on how SMEs navigate through these crises. The significance of this approach lies in its potential to inform policymaking and guide the allocation of resources and support measures for SMEs.

When examining the impact of productivity crises on a global scale and the impact of pandemic related factors on SMEs, certain factors emerge as crucial determinants of SME resilience:

• Typology of Production Process/Services Provided: The nature of SMEs’ offerings, whether physical or digital/intangible, plays a pivotal role in their ability to weather prolonged crises.
• Typology of Business Sale Model: The degree of reliance on physical stores versus ecommerce
channels can significantly influence an SME’s adaptability.
• “Essential” Nature of the Product/Service Provided: Industries providing essential goods or services, such as agro-food production, tend to exhibit greater resilience compared to those offering non-essential leisure activities.
• Reliance on Broader Industry Supply Chains: SMEs that function as standalone entities face different challenges than those deeply integrated into the supply chains of larger industries.

Taking these factors into account, it is no mystery that the sectors that were hit the hardest by the COVID-19 pandemic were retail and tourism.
There are also Complementary Factors that speak to the individual SME perspective when assessing the adaptability of individual SMEs, a multifaceted view is indeed necessary. Six complementary factors come into play:
• Workforce: The skills and availability of an SME’s workforce can greatly impact its ability to adapt to changing circumstances.
• Containment measures: to combat possible obstacles as soon as possible.
• Financial: The pre-crisis levels of liquidity an SME possesses can be a determining factor in its survival and recovery.
• Digitalization: Awareness, capacity, and resources for digitalization are essential in the current business landscape.
• Public Assistance: The fiscal capacity of the national context to support SMEs, in comparison to the SMEs’ own capacity to exploit these resources, is a crucial consideration.
• European Diversity: Structural differences at both international and regional levels introduce unique challenges and opportunities for SMEs.

In addition, the study already foresees the deeper implications of the rising tensions in international relations through the invasion of Ukraine by Russia. The corresponding energy and inflation crisis already foretells a broad productivity crisis with stronger implications for all SMEs across industry sectors.

The study provides a set of recommendations tailored to the short, medium, and long term, aiming to bolster the resilience and adaptability of SMEs facing prolonged productivity crises. Some of these points have also been taken into consideration in the most recent EU Commission policy publications such as the 2023 Relief Package for SMEs, signifying the importance of the study.

Short-Term Recommendations
During or shortly after a crisis, It is crucial to work towards restoring the Disruptive Business Environment (acting upon Emergency Structural Support).
Policymakers should aim to:
• Simplify procedures: streamline bureaucratic processes to provide swift and efficient support to struggling SMEs.
• Acknowledge business viability: recognize the specific needs and challenges of different industry sectors, tailoring support accordingly.
• Provide a strategy for a sustainable post-crisis economy: develop a coherent strategy that looks beyond the crisis to ensure long-term sustainability.

Medium to Long-Term Recommendations.
When speaking about this aspect, Dr. Camonita divided these recommendations into three macroareas:

1) Aligning industrial needs with policy making (focusing mainly on Regulation and Governance for SMEs)
Policy going forward must strive to:
• Support the Align Policy Framework: Continuously adapt policies to align with emerging challenges and the evolving needs of SMEs.
• Ensure inclusive public procurement: fostering an inclusive public procurement system that is conducive to the SME ecosystem.

2) Implementation of the Pact for Skills (underlining the importance of training and skills)
It is therefore crucial to:
• Prioritize SMEs in training initiatives: ensure that SMEs are at the forefront of training and capacity-building programs.
• Offer trainings for diversity and creativity in entrepreneurship: to encourage and support diversity and creativity among SME entrepreneurs.
• New Instruments to Support Digital Transition (Innovation, Sustainability, and Cohesion)

3) Innovation, sustainability and cohesion
Decision makers should focus on:
• Technological and logistical support: provide SMEs with the necessary technological and logistical support to facilitate their digital transition.
• Facilitate access to funding: create fast-lane procedures for SMEs to apply for funding related to digitalization initiatives.

In conclusion, the evolving nature of economic crises necessitates a dynamic approach to understanding SME adaptation. This study’s focus on adaptation factors rather than industry sectors offers a valuable perspective for policymakers and stakeholders seeking to support SMEs during prolonged productivity crises. By implementing the recommended strategies, we can empower SMEs to not only survive but thrive in an ever-changing economic landscape.

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