How small business can thrive in a post-pandemic economy
I recently published an article on the post-pandemic world economy and its effect on Canadian SMEs. In it I contend that while Covid-19 has been devastating, it has also provided us all valuable lessons. It has exposed glaring vulnerabilities in how we conduct international trade and manage global supply chains. It has also given rise to dramatic improvements in natural ecosystems, giving us pause to consider how we organize our societies and particularly our workplace environments.
SMEs, our biggest employer and the most ravaged of all sectors, have been reacting to the new conditions by being proactive and responsive to needs in their communities. Throughout this crisis, they have reminded us of their adaptability, innovation, and resilience. With the right support, small business can thrive in a post-pandemic economy.
Nobody has been hurt more in this economy than the SME sector. Closures, reduced hours, and layoffs have impacted the vast majority of small businesses and up to 30% report that they will not survive the next 30 days without government assistance. More than anything else, the uncertainty of just how long the shutdown will last and what the recovery will look like is anybody’s guess. One thing is for sure – it will not be business as usual once this pandemic is behind us.
But SMEs, by nature, are adaptable, innovative, and resilient. They have been responding to the new conditions by being proactive and responsive to needs in their communities. Non-profits have expanded their essential services, restaurants have introduced new take out and delivery options, and manufacturers have stepped up to divert their resources to supply personal protection equipment (PPE) and sanitizers to frontline workers. Others have donated time, household goods, and food to community organizations and to one another.
Close to 3,000 Canadian companies have reached out to offer their expertise and capacity. Ontario has established a $50 million Ontario Together Fund to help governments, business, communities, and private citizens mobilize against the pandemic. When announcing this initiative Premier Doug Ford stated, “Ontario has an army of innovators, entrepreneurs, and the hardest working people in the world ready to roll up their sleeves, support our frontline workers, and beat this virus.” There are many such initiatives across the country.
Coronavirus has imposed what some term the new “shut-in” economy. Self-isolation and social distancing has accelerated workplace and consumer trends. Remote work, online training, streaming services, video conferencing, and door-to-door delivery of goods and services have become the new normal. Items that were once typical of a weekend shopping list are now in short supply.
The pandemic has taken us to a fork in the road, giving rise to dramatic improvements in environmental ecosystems the world over. It has also exposed glaring weaknesses in how we conduct international trade and manage global supply chains.
Major cities around the world have seen a marked decline in CO2 emissions and Asia reports a 25% reduction in greenhouse gases. Wildlife everywhere has been steadily taking back urban space. Venice canals, toxified by decades of tourist and shipping traffic, are now crystal clear and repopulating with marine life. The ozone layer over Antarctica is showing signs of accelerated repair, raising hopes of slowdown in Arctic ice-melt. Economic shutdown has fostered the re-emergence of ecosystems thought to be long dead. Nature is telling us that when given a chance, she will heal.
All this has energized the environmental movement. Environmental and scientific communities everywhere point to these developments as indisputable proof that there is yet time to turn back the environmental clock – providing impetus for more commitment and action. Climate change reduction, the defining issue of this century, has been growing in momentum and will continue to dominate the world stage. The terms “anthropocene” and “holocene” extinction has entered into the popular vernacular. There is unprecedented demand for a different way of doing things.
Industries engaged in deforestation, industrial farming, commercial fishing, fossil fuel production, waste management, and mining are among the many under pressure to become more eco-friendly or cease operations altogether. Governments are increasingly under pressure to invest in alternative, eco-friendly industries. The United Nations and other intergovernmental organizations have made climate change their first priority and a young generation united behind leaders like Greta Thunberg is quickly becoming a generation of activists. All these factors together point to a fundamental shift in a post-pandemic economy.
The global economy is more fragile then otherwise thought. Recent disruptions in international trade has shed light on the protectionist tendencies of governments and weaknesses in global supply chains. France, India, and the United Kingdom have adopted trade-restrictive measures, including export bans, export authorizations, and threats to revoke the licenses of medical suppliers if they export abroad. The Trump administration recently threatened to cut off shipments of N95 respirators to Canada and Canada discovered last week that surgical masks shipped from China fail to meet safety standards set for frontline workers. Thanks to federal mismanagement of the National Emergency Stockpile, Canada is reliant on China for 70% of its PPE.
Global trade disruptions have had a disproportionate impact on developing countries. Few countries manufacture the equipment needed to fight the pandemic and fewer countries still have an adequate stockpile of PPE. According to the Center for Strategic & International Studies, “The global trade system lacks a codified set of rules and mechanisms to coordinate crisis response and ensure actions taken to protect life in one country do not cause calamity in another. This has added to the existing chaos in the global economy, as countries continue to take uncoordinated trade actions to deal with a pandemic that demands a unified global response.”
Arbitrary trade-restrictive measures taken by nations to protect medical supplies have now extended to food supplies. The UN Food and Agricultural Organization has warned that such moves could cause global food shortages. It reports that the pandemic is impacting global food systems, disrupting regional agricultural value chains, and posing risks to household food security. Logistical impediments such as a shortage skilled farm pickers, erratic port and trucking operations, and national stockpiling have exacerbated the problem. The pandemic has demonstrated that global supply chains fail to locate essential goods when they are critically needed.
Global supply chains tend to operate in silos at the best of times. Silos reside at each step of the lifecycle journey, so that a manufacturer knows what it produces, a warehouse knows what it receives and dispatches, and a shipper knows what it transports. But information often stays contained within each organization, impeding the flow of custody. End-to-end traceability is often compromised because of a multiplicity of factors, such as disparate data-sharing platforms, differing product categories, and inconsistent regulations and protocols. The World Economic Forum also reminds us that, “<global> supply chain opacity presents an enormous barrier to addressing sustainability goals that call for the reuse, resale and/or recycling of products and their components”.
The 1995 TRIPS Agreement allows governments to permit the production of a patented product without the permission of the patent holder under exceptional circumstances. Canada enacted Bill C-13 last month to enable the federal government to fast-track medical product and technology licenses in times of emergency. This move will decrease reliance on other nations for essential products and create made-in-Canada solutions.
Like Canada, most governments and industry realize that they have become so dependent on off-shore supplies that they cannot meet basic needs critical to national self-sufficiency. Prior to this, the rationale behind offshore production and outsourcing (the purchasing of parts) in the global economy had been cost reduction. But this is less and less the case. Manufacturing and labor costs have consistently increased over the last twenty years in developing countries, particularly in China. As in Western countries, there is also a growing trend to automate menial tasks.
The need to repatriate industry and jobs resonates with many Canadians. In an article published two weeks ago, Niagara Industrial Association co-founder Joe DeMan observes, “If you consider that wherever it's manufactured — Malaysia, or China — that means the whole textile supply chain is with it, which means you no longer have the ability to really manufacture masks in quantity when a pandemic like this comes up. I wanted to raise awareness to everybody that the ability to manufacture our own goods is as vitally important as the ability to process our own food and to construct our own shelter.”
New Beginnings bring New Opportunities
History has taught us that short-term measures taken in response to global crises lead to changes that last for decades. The post World War II era propelled a new age of manufacturing ingenuity and entrepreneurship. The Great Recession of 2007-09 accelerated a shift from the “ownership economy” to the “experience economy.” We have now made a fundamental shift to the shut-in economy.
Coronavirus has caused the convergence of many global factors. First, the environmental movement is increasing in momentum. It is actively garnering the support of governments, international organizations, industry, investors, and public opinion. This will lead to increased conservationism and stewardship of natural resources. It will also pressure industry to reduce environmental harm and governments to develop eco-friendly alternatives.
Second, breakdowns in international trade and global supply chains have exposed critical vulnerabilities in our global economy. The protectionism seen in many countries will lead to a questioning of state policies. This will ultimately lead to renewed commitment to a unified global community when dealing with crisis.
Third, there will be many more fully integrated supply chains within nations with less dependence on global supply chains for key components of the manufacturing process. This will be especially true of supply chains that handle essential goods and services as well as components considered vital to the manufacturing base of local economies. It is time to bring critical supply chains home.
These dynamics will drive the incentive plans of governments as they scramble to resurrect their economies. The tipping point will be jobs. SMEs, responsible for over 80% of employment in the private sector and for 55% of Canada’s total economic output, will not recover without massive public funding.
But SMEs are resilient, entrepreneurial, and resourceful. With the right support, they will rebuild, transition, and diversify. They will lose customers and find new ones. They will pivot their businesses as they seize on new opportunities. They will invigorate nascent eco-industries and create new jobs filling gaps in supply chains. Above all, they will find the means to survive and prosper in the new economy. What they need now is time and our support. The jobs will come.