The prolonged community quarantine imposed by the government to contain the spread of Covid-19 has adversely affected micro, small and medium enterprises (MSMEs) in the Philippines. According to the Philippine Statistics Authority, some 4.6 million Filipinos were out of work as of July, severely dampening household consumption. The increase in transportation costs because of the quarantines has raised MSMEs’ overall business expenses. Low revenues and high expenses have put extreme pressure on their cashflow.
Add to these is the low adoption of technology, such as using social media and other online channels for business communication, which makes it difficult for MSMEs to adapt to the digital way of doing business. Supplier and customer payment transactions continue to be in cash, which increase the risk of coronavirus transmission.
But with the government allowing full-capacity operations of businesses in several sectors, there are now opportunities for MSMEs to adopt strategies for their survival and growth. There is a rich body of research that shows remarkable yields from MSMEs during a crisis by developing and executing strategies and innovative tactics to survive and even grow.
One timely and groundbreaking study on this matter is that from Konstantinos Bourletidis and Yiannis Triantafyllopoulos, who gathered data from MSMEs and analyzed various crisis situations — from the 1997 Asian financial crisis to the Greek economic crisis of 2009 to 2018 — surrounding MSMEs. They outlined four strategic alternatives available for MSMEs in order to survive this crisis and even pursue growth.
The first is product reengineering. This involves reconfiguring your offering to meet the changing demands of the customers, such as producing lesser-quality goods to reduce costs and shifting toward necessity and used or refurbished products. Several MSMEs have already shifted their business to offering necessities, such as food deliveries. Others shifted to selling refurbished furniture, laptops and others items at lower prices to economically challenged consumers.
The second is emphasis on new customers with new buying habits. “Because the customers in periods of economic crisis and recession change their consuming habits, they are in the position to experiment with other products-packets that suit to the new profile of their habits,” Bourletidis and Triantafyllopoulos said. We have seen this approach in several MSMEs offering to delivery products with the support of logistics apps. This has led to the growth of community commerce, where MSMEs serve their customers within a certain area and/or in virtual communities in a cost-effective way.
The third is using segmented pricing for each customer segment that you serve. This involves understanding the different segments of your market and pricing differently for each market served to maximize the value you deliver and capture without sacrificing your profit margin. For example, some MSMEs in the food delivery business segmented their offerings into general food consumer and plant-based or vegetarian offerings. The latter is priced at a premium despite almost having the same raw material cost as the former.
The fourth is supplier stock procurement reconfiguration. This involves negotiating with your suppliers to allow the consignment of goods instead of a straight purchase, or just negotiating the terms of payment to give you room to manage costs. Many MSMEs have applied this tactic since the start of the pandemic. But you must make sure that all the input cost of materials in your product offering are negotiated with suppliers.
Behind every crisis is opportunity, as the saying goes. But opportunity favors only those who are prepared. Methodically planning for a shift in your business when the economy reopens again would yield greater results and historical evidence has proven this time and again.
The author is the chief executive officer of Hungry Workhorse Consulting, a digital and culture transformation consulting firm. He is the chairman of the Information and Communications Technology Committee of the Financial Executives Institute of the Philippines. He is also a fellow at the US-based Institute for Digital Transformation and the country representative of the Institute of Change and Transformation Professionals Asia. He teaches strategic management in the MBA program of De La Salle University. He can be reached at rey.lugtu@hungryworkhorse.com.