VERA BARINOVA: “THE CRISIS PROVED A CHANCE FOR THE COMPANIES TO RESHAPE THEIR ACTIVITY”
Vera Barinova, Head of the Innovation Economy Department at Gaidar Institute, commented on the next stage of restrictions easing and briefed on how much coronavirus reflected on the SME sector and what else companied and individual entrepreneurs should expect during this difficult year.
Service businesses return to work following the removal of coronavirus pandemic-induced restrictions. From August 1, cinemas went into operation in Moscow, concerts and sports events are allowed with restrictions. Metropolitan coffee-rooms and restaurants, fitness clubs and entertainment centers went back to work even earlier. Easing of restrictions is taking place gradually by schedule in other parts of the country. How many SME firms have not managed to cope with the crisis now?
“While analyzing statistics one should always keep in mind that reality is reflected in numbers with a lag and often with distortion. I think that crisis fallout will drag for several years without doubt, furthermore pandemic coupled with a number of other economic and political events that affected major countries, in other words the current crisis is a global one in essence.
It is important to underscore that prior to crisis the SME sphere in Russia was far from flourishing, a number of indicators were declining: from summer 2018 the number of employed in SME was contracting, in 2019 contraction hit 0.5 mn persons and not at the expense of individual entrepreneurs and microbusiness but precisely the headcount in small and medium-sized enterprises was decreasing.
Introduction of lockdown regime cut demand for goods and services of industries customary for SME: wholesale and retail trade – 60.4% of the total turnover, manufacturing – 10.4% and construction – 7.5% (one can read in detail here). Immediately entertainment, tourism, small beauty salons collapsed, dental rooms closed down. The SME sphere was practically entirely paralyzed for some time, except those businesses that quickly managed to go online. That is why, introduction of restrictions was accompanied by panic, and doom-laden projections were expressed.
But if we look at the numbers, the official statistics so far does not reflect earlier projected catastrophe: according to SME Unified register in mid-March (data is monthly upd ated on the 10th) the data bank numbered 5.96 mn subjects of SME and in mid-July – 6.051 mn. Of course, this is not growth at all: in reality the system was simply supplemented with data on firms that submitted additional financial reporting. However, on the whole, judging by the available data, it does not look terribly badly.
Some sources reflect that enterprises are alive and recover rather successfully. Tochka bank releases statistics which at early July demonstrate recovery of SME’s income to the pre-crisis level. According to the World Bank surveys, SME in Russia went through this spring and summer better than those in other countries. Although, according to data released by online cash registers, many enterprises after easing restrictions did not resume their work, apparently, they withdrew into shadow economy.
Further development of the situation will depend not only on the policy conducted by the authorities but on how coronavirus will evolve and on the epidemiological situation. Will there be a second wave? How fast herd immunity will be hardened? Will they define a possibility of recontamination? Will vaccine be ready and will it be effective? All this will determine if new restrictions are required and how stringent and lasting they will be. However, even now it is clear that the authorities will be trying to avoid a large scale lockdown, that’s why let’s hope that the hardest time for SME is already behind,”- marker expert.
According to V. Barinova, crisis is the time of opportunities. Pandemic and lockdown forced many companies to reshape their business processes and turn to digital transformation.
“Crisis gives a chance to reconsider targets, reshape activity. Uncompetitive companies die faster. Many SME faced challenges during the crisis, not all of them survived, market niches were freed adimst bankruptcies. It’s time to launch new business! Crisis outbreak brought about popularity of applications with various feature se t for video conferences, meetings. Delivery services experience ‘hectic time’: people actively use online delivery. Cleaning and disinfecting agents, sanitizers were in hot demand in spring. Some online stores soled ‘coronavirus’ positions—masks, sanitizers, gloves, etc.— at many-fold price. I will not name firm in order not to give it publicity. However, a popular online store at one time quoted Rb 33,000 for electric thermometer, which usually costs around Rb 1,500. Entertainment industry also went online: museums that were in time for digitalization launched online excursions. The number of users of online games and cinemas went up.
One can assume that new conditions will contribute to more rapid digitalization of education, healthcare. The issue of better personal data protection will arise. Consequently, all firms ensuring these processes will get impetus for development.
However, in order to successfully be integral to the global value chain small business in Russia lacks competitive technologies. Mainly medium companies become exporters and they are in the minority in Russia—less than 0.3% of SME. Accordingly, Russian SME reaction to the crisis consists, first of all, in building flexible business-models and rapid digitalization of business processes, services to create all possibilities for distance working. This is development of practical sites, mobile applications, work with delivery companies.
Russian SME managed to increase rapidly their share of online sales and there is a point that they did it better than those abroad according to data released by the World Bank. And therefore, one can consider that in Russia business reacted to the challenges on an operational basis. In the wake of coronavirus, the following paradigm is effective “either you react fast and adapt or die.” Micro- and small business are considered to be more flexible. When your team is less than 15 persons and oftener 2-3 persons, it is easier to reshape activity. On the other hand, SME always are very limited in resources, this is their weak point,”- ended V. Barinova, Gaidar Institute expert.
“While analyzing statistics one should always keep in mind that reality is reflected in numbers with a lag and often with distortion. I think that crisis fallout will drag for several years without doubt, furthermore pandemic coupled with a number of other economic and political events that affected major countries, in other words the current crisis is a global one in essence.
It is important to underscore that prior to crisis the SME sphere in Russia was far from flourishing, a number of indicators were declining: from summer 2018 the number of employed in SME was contracting, in 2019 contraction hit 0.5 mn persons and not at the expense of individual entrepreneurs and microbusiness but precisely the headcount in small and medium-sized enterprises was decreasing.
Introduction of lockdown regime cut demand for goods and services of industries customary for SME: wholesale and retail trade – 60.4% of the total turnover, manufacturing – 10.4% and construction – 7.5% (one can read in detail here). Immediately entertainment, tourism, small beauty salons collapsed, dental rooms closed down. The SME sphere was practically entirely paralyzed for some time, except those businesses that quickly managed to go online. That is why, introduction of restrictions was accompanied by panic, and doom-laden projections were expressed.
But if we look at the numbers, the official statistics so far does not reflect earlier projected catastrophe: according to SME Unified register in mid-March (data is monthly upd ated on the 10th) the data bank numbered 5.96 mn subjects of SME and in mid-July – 6.051 mn. Of course, this is not growth at all: in reality the system was simply supplemented with data on firms that submitted additional financial reporting. However, on the whole, judging by the available data, it does not look terribly badly.
Some sources reflect that enterprises are alive and recover rather successfully. Tochka bank releases statistics which at early July demonstrate recovery of SME’s income to the pre-crisis level. According to the World Bank surveys, SME in Russia went through this spring and summer better than those in other countries. Although, according to data released by online cash registers, many enterprises after easing restrictions did not resume their work, apparently, they withdrew into shadow economy.
Further development of the situation will depend not only on the policy conducted by the authorities but on how coronavirus will evolve and on the epidemiological situation. Will there be a second wave? How fast herd immunity will be hardened? Will they define a possibility of recontamination? Will vaccine be ready and will it be effective? All this will determine if new restrictions are required and how stringent and lasting they will be. However, even now it is clear that the authorities will be trying to avoid a large scale lockdown, that’s why let’s hope that the hardest time for SME is already behind,”- marker expert.
According to V. Barinova, crisis is the time of opportunities. Pandemic and lockdown forced many companies to reshape their business processes and turn to digital transformation.
“Crisis gives a chance to reconsider targets, reshape activity. Uncompetitive companies die faster. Many SME faced challenges during the crisis, not all of them survived, market niches were freed adimst bankruptcies. It’s time to launch new business! Crisis outbreak brought about popularity of applications with various feature se t for video conferences, meetings. Delivery services experience ‘hectic time’: people actively use online delivery. Cleaning and disinfecting agents, sanitizers were in hot demand in spring. Some online stores soled ‘coronavirus’ positions—masks, sanitizers, gloves, etc.— at many-fold price. I will not name firm in order not to give it publicity. However, a popular online store at one time quoted Rb 33,000 for electric thermometer, which usually costs around Rb 1,500. Entertainment industry also went online: museums that were in time for digitalization launched online excursions. The number of users of online games and cinemas went up.
One can assume that new conditions will contribute to more rapid digitalization of education, healthcare. The issue of better personal data protection will arise. Consequently, all firms ensuring these processes will get impetus for development.
However, in order to successfully be integral to the global value chain small business in Russia lacks competitive technologies. Mainly medium companies become exporters and they are in the minority in Russia—less than 0.3% of SME. Accordingly, Russian SME reaction to the crisis consists, first of all, in building flexible business-models and rapid digitalization of business processes, services to create all possibilities for distance working. This is development of practical sites, mobile applications, work with delivery companies.
Russian SME managed to increase rapidly their share of online sales and there is a point that they did it better than those abroad according to data released by the World Bank. And therefore, one can consider that in Russia business reacted to the challenges on an operational basis. In the wake of coronavirus, the following paradigm is effective “either you react fast and adapt or die.” Micro- and small business are considered to be more flexible. When your team is less than 15 persons and oftener 2-3 persons, it is easier to reshape activity. On the other hand, SME always are very limited in resources, this is their weak point,”- ended V. Barinova, Gaidar Institute expert.