COVID-19 and SMEs Entrepreneurial Orientation

May 16, 2020

By Paul Orajiaka (CEO of Auldon Group & Research Associate, Henley Business School)

-4 min read-

As a research associate at Henley Business School, with a doctoral thesis focused on the moderating effect of the external environment on the entrepreneurial orientation-organizational performance relationship, the COVID-19 pandemic and its devastating impact on small and medium enterprises (SMEs) poses a great piece of study on how SMEs can cope during these trying times. 

The reality of the economic impact thrown up by the COVID-19 pandemic on SMEs around the globe has altered the business environment, destroying entrepreneurship just akin to its virulent nature, leaving Governments dumfounded on how to manage it impact and tackle a post-COVID-19 rebuild. This article will look at the impact of the COVID-19 on the entrepreneurial orientation of SMEs majorly in developing countries, their survival strategy and the opportunities the crisis avail them. 

Small and Medium Enterprises

SMEs have become an increasingly important component of economic development around the world and their performance represent a substantial proportion of national economic success. Small businesses have been known to be the bed rock of most developing economies and the environment in which they operate is believed to be so powerful to create or destroy their entrepreneurial orientation. Entrepreneurial orientation as a concept in entrepreneurship literature, has three main dimensions of innovation, risk-taking and pro-activeness with autonomy and competitive aggressiveness as new conceptualization, bringing the dimension to five.

The COVID-19 pandemic ravaging the world has become a major threat to SMEs operating even in the most developed economies as America, Europe and Asia let alone SMEs operating in under-developed and developing economies where building strong, vibrant and viable small and medium enterprises is necessary in order to solve their numerous socio-economic problems. For a country such as Nigeria with an estimated population of about 200 million people out of who about 70% are classified as poor based on the international poverty threshold of less than 1.25 dollars per day, the COVID-19 crisis has put further pressure on an already impoverished society who majorly engage in micro and small-scale businesses to sustain their lives and possibly get out of poverty. 

Entrepreneurial Orientation of SMEs 

The EO concept has over the years remained a vital tool with which SMEs build capabilities that enable them find and harness opportunities, respond to environmental challenges and willingly undertake risks under uncertain circumstances. However, no SME could anticipate the severity and disruption caused by the current COVID-19 pandemic that has moved from a health crisis to an economic crisis. The big question now is how small businesses around the world will weather this storm and adopt a strong entrepreneurial orientation which will lead them to openness to new things in other to harness some of the opportunities the present situation avails.

Most SMEs in the developing world already operate in a business environment that is multifaceted, complex and dynamic in nature with a far-reaching impact on their performance and growth. Therefore, a skillful utilization of EO five dimensions of innovation, risk-taking, pro-activeness, autonomy and competitive aggressiveness as a strategic orientation approach by SMEs during the COVID-19 crisis will help mold specific decision-making styles, practices, and methods to achieve business performance. 

With the world as a whole likely to enter into a recession in 2020, according to latest estimates from the International Monetary Fund (IMF), SMEs will more than ever before now look inward on how to stay relevant, rethink their values and value propositions. Innovation sterns from times of challenge and with the COVID-19 crisis, this could be an opportunity for SMEs to rethink their business approach either for the short term or long term

Survival strategy and opportunities

The survival strategy for SMEs during this pandemic will be of two-fold. The SMEs themselves and the Government on the other hand.  On the side of the SMEs, this downtime caused by the pandemic, creates an opportunity for them to rethink their business model and develop contingency planning since their well thought out strategies prior to COVID-19 has been greatly altered by sudden event of the pandemic. An entrepreneur is believed to be one who exploits opportunities and has a tenacity to face challenges, therefore this period of lockdowns and restrictions is opening up opportunities for digital trade and platforms more than ever for SMEs to rechannel their businesses online to boost sales, reach new customers, diversify products and create more revenue streams. In some cases, these digital platforms will help bridge the gap between producers and consumers, eliminating the middlemen and give more profit to the SME.

On the Government part most SMEs in their countries have over the years rarely drew on government support and very few participate in networks of government support institutions. Therefore, while governments are putting together emergency support, this pandemic creates the best opportunity for governments to reach out to these SMEs to encourage them to key into the support initiative, palliatives and incentives as the case may be at this difficult time. Low-interest loans and other concessional financing, aimed at easing short-term liquidity challenges of SMEs at this crucial COVID-19 crisis, should be at the forefront of the stimulus packages by governments to prevent bankruptcies amongst small businesses. Options of tax break aimed at reducing cost for SMEs will also be an effective measure to help SMEs absolve some of the losses they have face during the COVID.

Alongside his work in the private sector and as a Research Associate, Paul is our Chapter Leader in Nigeria.
Join the Nigeria Chapter here.

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