The idea of a crumbling economy is like wading deep into quicksand—every desperate move only pushes you below the surface. After two consecutive quarters where the gross domestic product of the Philippines fell, the country slipped into economic recession—for the first time since 1998. How does this major blow directly impact small businesses? Is recovery still possible?
“Many firms remain closed or operated at much lower capacity, suggesting that parts of the sector have some way to go to restore production to pre-pandemic levels,” says IHS Markit economist David Owen.
“Demand also fell, although the rate of decline was far softer than in May. Firms have noticeably held back from hiring as a result of weak demand, as employment numbers dropped at the steepest rate since March,” added Owen.
He also notes that there is a need for a shot up in the demand of goods before jobs can return again. Although minor surges in new orders and export orders are encouraging, recovery may still be slow as the pandemic continues, even picking up speed in some regions.
Disrupted cash flow
Even before the crisis, small businesses already have tight budgets. A single late payment can already disrupt the cash flow and affect the production process. During a recession, delayed purchases and payments are more likely simply because buyers are also waiting for their own income, too. The pandemic caused movement restrictions which is why there are further delays in receiving and disbursing goods. Aside from the issue on supply, it’s harder to borrow money due to a credit background that reflects declining profit.
Small businesses that depend on regular buyers for bulk revenue may be severely affected if there’s a reduction in purchase or worse, if the major customer stops buying completely. It’s also harder to sell what was initially intended for regular business. Their partners will have to narrow down their budget, which may take a toll on their usual patronage of small businesses, only putting out money as little as possible in order to survive.
Cuts to quality
A common reaction of businesses during recessions would be to compromise the quality of goods and services. They will have to lower standards, reduce the production of raw materials or cut back on the quantity of its products—all these for the sake of minimizing costs. This decision will greatly tarnish their brand’s desirability as well as pose significant change on consumer loyalty.
Budget cuts are inevitable and so businesses will likely turn to retrenchment as a way to deal with financial shortages. New employees or those with redundant work responsibilities are usually the first ones to go. However, the move to reduce workforce might actually lead to lesser income as the remaining employees will have to shoulder all the remaining workload, leading to burnout or demoralization.
Businesses who are already well-established may do away without marketing and advertising for a couple of months. In the long run, this could not be beneficial (aside from saving the budget intended for marketing) as customers will be less familiarized with a business’ product. New products from competitors will take away the opportunity from small businesses had they only given marketing the same amount of attention it has pre-pandemic. An aftereffect of this would be an increase in advertising media rates—they too have to keep their business afloat—which means small businesses will have to seek other ways of still publicizing their business without adding too much on their costs.
Aside from the aforementioned realities on small businesses, the now expired Bayanihan Act left micro, small and medium enterprises (MSMEs) with no choice but to pickup where they left off in their rent and amortization loans.
The extension of community quarantine in various areas of the country also entails that people can’t go out to purchase goods from these small businesses. And with all the mass layoffs taking place in the industry, they don’t even have the financial means to do so.
Some buyers even took the pandemic as an opportunity to demand for more discounts (even present fake IDs just to get the deduction) or worse, refuse to pay for past or pending dues and orders.
It’s a period when everyone has to work their way around limitations and try their best to still land on both feet. Stability is now an alien concept to MSMEs while certainty remains to be a distant future for the country. For now, the small business sector of the industry needs all the support it can get from the consumers, their co-industry players and the government.