How Covid19 Pandemic Affected Small Businesses

A write up on external forces PESTEL (identifying opportunities and threats) that may have positive and negative impacts on new business entrants (MSMEs) amid the covid19 pandemic.

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Political

Threat:

The political factor determines to which a national or local government influences a certain industry. The government tax policies and sanctions affect the revenue-generating structure of any MSME.

The ongoing forced community lockdowns, whether it be enhanced, general and modified lockdowns places pressure on the finances of medium to small businesses.

Unlike with the bigger and established companies that can absorb losses over a long period of pandemic lockdowns, the overhead expense of medium to small business continues to pile up in spite of government bailouts. These bailouts are very limited and impossible to cover all the costs due to long sanctions imposed by the government.

In the city of Baguio, new business entrants (MSMEs) opened their businesses in December 2019 to take advantage of the Christmas holiday peak season. Most of these businesses that opened shop are in the service-food industry.

By March 13, 2020, these new businesses were forced to follow a government-imposed lockdown. The businesses were forced to stop their dine-in operations and were allowed to operate through online ordering and delivery. When the restrictions were eased by the local government by June 2020, businesses were not allowed to operate at 100% dine-in capacity.

Together with the new small to medium businesses that were launched last December 2019, well-known franchise global brands that opened at SM Baguio were not spared. Brands such as Burger King, Shakeys, Mcdonalds, Kenny Rogers, Seattle’s Best, and others had to scale down their operations.

Opportunities:

While threats were felt by MSME amid the current health crisis. Certain businesses took advantage of the lockdown sanctions imposed by the government.

Businesses that were considered as essential goods and services were allowed to operate on the conditions that they comply with strict guidelines. Businesses involved with food, medicine, personal protective equipment, medical and testing centers were enjoying a competitive advantage over businesses that were not considered essential such as fashion retail shops.

There was a noticeable increase in the number of new businesses involved in delivery services for the past 7 months. This was a result of the increase in the number of online businesses and restaurants that had to shift to home delivery.

The local sari-sari stores located within every barangay in the Philippines have

been taking advantage since the imposition of forced community lockdown.

Considering the retail prices of basic goods sold at these stores are relatively

higher than the bigger supermarkets, the communities had to have access to

basic goods at a dictated price.

Economic

Threat:

The economic factor is a determinant of an economy’s performance that directly impacts a company and has resonating long term effects. (source)

Many MSMEs have been affected due to the current pandemic, community lockdowns, and worst the health scare effect on their customers. The scare has forced customers to stay at home and spend only on essential items.

In the process, many small businesses have decided to close down permanently due to unrecoverable losses. While some businesses have decided to restructure their operation in order to cut down on expenses.

It took 19 years for some MSMEs to build their businesses and it only took 5 months of lockdown to bring down their businesses. A good example is Forest House, a well-known restaurant in the city of Baguio. The management decided to permanently shut down their business after 5 months of lockdown.

The health crisis had a great effect on the purchasing power of consumers as millions have either lost their jobs or had to accept a percentage pay cut. This abrupt change influenced the demand and supply model of the economy.

There was a decline in the production of goods and services affecting the supply chain. As a result, there was an increase in the inflation rate due to a spike in the prices of basic goods and services.

When there is very low consumer spending, businesses are affected and the overall economy of a country takes a downward trend.

Technically, the Philippines is now on the recession as a result of the pandemic.

As a result, the start-up plans of new small to medium-scale business plans were canceled and the ongoing business expansions were put on hold.

Opportunities:

While there are economic threats, there are opportunities amid the pandemic. Companies allowed its employees from all levels, top-level, middle-level, and lower- levels to work from home.

The shift to working from home proved to be effective in terms of improved work productivity and efficiency. Employees were given more freedom in terms of more quality time with their families and avoiding infection from the dreaded covid19.

Companies had also shifted their hiring strategy by tapping the ” work from home” job market that somehow had led to lower staff hiring and training costs.

As a result, there was an increase in the number of work from home job vacancies in the job search market that helped millions of displaced workers gain employment during the pandemic.

Societal:

These factors scrutinize the social environment of the market, and gauge determinants like cultural trends, demographics, population analytics, etc. Example: Child Labor Laws, E Coli, Medical Ethics (source)

Threat:

The city of Baguio is the summer capital of the Philippines. A tourist destination and at the same time the education capital of northern Luzon. The business peak season normally starts from September to May and the city can be overcrowded with a daytime population of 700,000.

The city is full of life, spirit, energy and busy with business activities during the peak season. The commercial shops at the malls, the central business district, and other destinations are normally full of tourists, students, and residents.

Activities such as company seminars, sporting events, exhibits, concerts, the annual flower festival, and other important events are planned out during the year.

These activities have become the city’s yearly traditional activities. It is a season where thousands of global travelers and regular tourists visit the city of Baguio every year. The tourism industry of the city is a big boost to local businesses.

The city has also become the second home of thousands of millennials coming from nearby provinces to pursue their tertiary education.

The economy of the city is basically driven by two strong markets, the tourists and students. MSME businesses thrive from these markets.

The nationwide forced lockdown since March 13, 2020, due to the pandemic had disrupted all business activities resulting in an economic meltdown.

Opportunities:

While there was a societal threat, there were social opportunities as well.

The forced lockdown gave way to the building of stronger relationships within the family.

Essential businesses took advantage of the opportunity. The focus was on how to help families and customers cope during a long period of lockdown. They needed to be healthy, both physically and mentally at their homes.

Businesses involving online shopping, home delivery, health care, and home entertainment continued to generate good revenue.

Technological:

Threat:

These factors pertain to innovations in technology that may affect the operations of the industry and the market favorably or unfavorably. This refers to automation, research, and development, workforce; anything that

would disrupt the course of the company to conduct business.

Example: Computer Crime, Labor Shortages, Labor Disputes. (source)

New businesses that were caught by surprise by the forced nationwide lockdown due to the pandemic did not anticipate the long-term effects.

Businesses that were already well prepared and had adapted to advanced technology in their businesses even before the pandemic had a competitive advantage.

Their customers can order products online through the website, social media, and smartphone applications with convenience. Online payments and home delivery became very convenient for their customers.

Old and new businesses that did not adapt to technology and were not prepared before the pandemic had faced serious threats from their competitors.

Opportunities:

With the prolonged community lockdown, millions were forced to stay and work from home, however, the millions of households were already connected with their internet service providers.

There was a dramatic increase in internet usage as millions were forced to

engage with each other through the internet.

Whether these engagements were social, recreational, and work-related, new businesses that had a wide online presence had a competitive advantage.

Legal:

These factors have both external and internal sides. There are certain laws that affect the business environment in a certain country while there are certain policies that companies maintain for themselves. The legal analysis takes into account both of these angles and then charts out the strategies in light of these legislations.

Examples: Class Actions; Fines & Penalties, Patent Infringement.

source

Threat:

The legal threat to new businesses became apparent amid the pandemic. Businesses that failed to comply with laws and guidelines set by the national and local governments faced strict sanctions. These businesses had to adhere to the following;

Wearing personal protective equipment by its employees and customers.
Implementation of social distancing systems.
Compliance with the allowed customer capacity at any given time.
Compliance with prescribed business hours.
Other restrictions according to the level of community quarantine based on geographical location.

Any businesses found to violate any of the laws and guidelines were subjected to offenses and suspension of business operations.

Opportunities:

The health scare drove the people in the community to stay home. The city of Baguio became the role model of the whole country. Its residents are more disciplined, cooperative, and concerned about mitigating the spread of the virus.

Opportunities are created when customers become loyal to old and new businesses that are 100% compliant amid the pandemic.

Customers will not risk their health during a pandemic.

In business, “location is considered king”, but the new normal had somehow changed this business concept. Businesses that are located in less crowded commercial establishments are now preferred because customers are now avoiding crowded places.

Environmental:

These factors include all those that influence or are determined by the surrounding environment. This aspect of the PESTLE is crucial for certain industries particularly for example tourism, farming, agriculture, etc. Factors of a business environmental analysis include but are not limited to climate, weather,

geographical location, global changes in climate, environmental offsets, etc. Example: Oil Spills, Hurricanes, Drought. (source)

Threat:

The pandemic threat did not discriminate against a particular business or industry. Whether the business is a service or manufacturing oriented industry, old or new business, and regardless of business size, the threat disrupted businesses.

The economy of every province within the Philippines had slowed down causing a downward shift to the country’s first-quarter GDP.

New businesses that had opened only a few months before the forced nationwide lockdown last March 2020 had incurred losses.

Businesses that had been planned to open in the first quarter of 2020 or had plans for business expansion had to cancel due to pandemic.

These threats had caused massive unemployment and missed opportunities.

Opportunities:

The pandemic threat had also created opportunities for old and new businesses.

These businesses realized the importance of the “online presence” of their businesses and the advantages of adapting to technology in the promotion of their businesses to their target customers.

Businesses that had adapted technology and had a proper amount of time to make the necessary adjustments in their operations even months or years prior to the pandemic had a competitive advantage over businesses that only adapted technology amid the pandemic.

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