Blog: The ‘new normal’ for internationally minded small businesses
The COVID-19 pandemic has interrupted production, trade, consumption and our lives at large in an unprecedented manner. The impact has been dreadful for millions of people across the globe. Trade and development practitioners, academics and the public increasingly reflect on the recovery period and the implications for production, trade and socio-economic development. Four aspects appear to be of particular importance for internationally minded micro, small and medium-sized enterprises (MSMEs) to get ready for the 'new normal' and be on the forefront of generating resilience, inclusiveness, sustainability and growth in the future.
1. Enhance public-private dialogue for robustness and transparency in international supply chains
The current crisis proves that efficient supply chains and reduced trade barriers are crucial for the supply of essential goods, particularly for developing countries. However, trade-related practices in recent years have witnessed an increase in trade-restrictive measures combined with waning political support for an open world economy and multilateralism. Currently, the World Trade Organization finds a growing number of export restrictions in response to the COVID-19 crisis.
Better public-private partnership approaches can identify and address the constraints that normally impede rapid supply replenishments of essential products. Looking at the bigger picture, there is often a disconnect between the vertical operations of supply chains, often across several borders, and the horizontal multilateral dialogues on regulatory frameworks and related topics in public-private dialogue.
Let us take for example the production of a car. The many parts that go into a car are typically produced and assembled in a range of countries. The parts going into a gearbox, for example, might be produced in different countries and assembled into a gearbox in a third country. The gearbox is then shipped to a fourth country where it is put into the car and mounted to the engine. The car is then shipped to a fifth country where it is sold. As production happens in many countries, they are governed by different national regulations informed by domestic private-public dialogues. Yet, they form part of one vertical supply chain. Consequently, the vertical organization of the supply chains and the horizontally held private-public dialogues do not conform. Having frameworks for private-public dialogues along the vertical supply chains would allow addressing matters along the chain in a more coherent matter.
One solution to this could be having the operations of international supply chains mirrored by an institutional structure, for example by supply-chain councils with public- and private-sector participants from those countries in which the various functions of the supply chains happen. The concept of international supply-chain councils, promoted by Bernard Hoekman¹ among others, appears very relevant in the current context with a need for rapid deployment of goods and for a long-term solution.
Supply-chain councils could lead to better private-public dialogues on regulatory frameworks that would ensure robust operations and better transparency in value chains. This implies embracing supply chains, not rejecting them - and acknowledging that trade and open markets are not a contradiction to building national resilience to shocks caused by virus outbreaks or other external factors.
2. Strengthen the ecosystems in which small businesses operate to protect them in the future
The COVID-19 pandemic has severely affected MSMEs across the world in three fundamental ways: a collapse in supply, a collapse in demand and by confinement requirements.
In some OECD countries, governments have provided financial support programmes to soften the blow from the crisis. Most developing countries are not able to do so to the detriment of their MSMEs and the affected communities.
The current situation points to a need for more robust ecosystems to support small businesses and their production, jobs, livelihoods and societal welfare. Better access to information, addressing logistical issues and other barriers, better access to finance, public procurement, e-commerce, tax abatement etc. are some important elements to help MSMEs face and survive the pandemic's consequences.
In addition, 'stress testing' the supportive ecosystems in which the MSMEs operate might be a good idea. A stress or pressure test can help identify the systems' weaknesses and help understand how to strengthen their robustness. Stress and shock testing financial systems in the aftermath of the 2008-09 financial crisis provided interesting and useful insights into making these systems more resilient.
Within business ecosystems, the institutions involved play a particular role. A key insight from the current crisis is that capable and competent institutions, underpinned by citizens' trust in these institutions, make a huge difference for countries' ability to address the crisis. This applies to business support organizations as well as other organizations at large.
3. While trade is a powerful vehicle for creating growth and societal welfare, we need better trade outcomes in a post Covid-19 world
Women, youth and poor communities are hit hardest by the impacts of COVID-19. MSMEs run by women or youth are on average less resourced and have less access to markets, information and finance than enterprises run by men. As employees, women and youth are often in vulnerable job situations - and many operate in sectors currently challenged by substantially reduced demand, such as tourism and hospitality, textile and garment, retail etc.
Poor farming communities face a triple challenge of climate change issues, often combined with substantial price fluctuations and now with a deepened health crisis. While climate issues have all but disappeared from the headlines in the daily news, environmental concerns will still be with us in a post COVID-19 era.
Moving out of the COVID-19 crisis, these challenges indicate that we need fairer, more equitable and more sustainable outcomes to ensure a prosperous, robust, inclusive and green world. They also imply that a substantial share of economic stimulus packages should be spent on sustainable solutions, and be pro-poor with a focus on labour-intensive activities and fast implementable initiatives.
4. Finding global solutions to global problems
COVID-19 has reconfirmed our interdependence as a global community and the need for global dialogue to find global solutions to global problems, whether these are related to the next virus outbreak, environmental or social issues.
International dialogues and multilateralism are important to ensure recovery and resilience as we exit this crisis. Institutions that facilitate this dialogue and establish the related rules and guidelines that steer us as a global community, such as the United Nations, are critical actors in this space.
Hoekman, B. 2014. Supply Chains, Mega-Regionals and Multilateralism: A Road Map for the WTO. London: CEPR Press.