WHAT JUST HAPPENED?

https://www.cgdev.org/publication/impact-covid-19-small-and-medium-sized-enterprises-evidence-two-wave-phone-surveys-china

WHAT DOES THIS MEAN?

The majority of micro and small enterprises in the services sector forecast they will close within one to three months if the pandemic continues, and current restrictions are kept. At LawMiracle, we note that micro and small enterprises are experiencing a greater decline in their business activity than medium and large enterprises, an unsurprising finding, since most micro and small enterprises have ceased operations in most countries because they are unable to implement preventive health measures, such as providing accommodation for local employees, disinfectants and hand washers for customers, and so on. These measures result in higher operating costs for companies that remain open.[2]

On the other hand, the majority of medium and large enterprises do not plan to close. According to a survey of SMEs conducted by the International Trade Center in 132 countries, two-thirds of micro and small enterprises said that the crisis has already affected their business, with a fifth stating the threat of closure within three months (International Trade Center 2020: 10).[3]

Based on several surveys conducted in different countries, McKinsey (2020) [11] shows that between 25% and 36% of small businesses closed in the first four months of the pandemic due to disruptions. There is evidence that the COVID 19 crisis is having an impact on SMEs, and surveys suggest that serious disruption is of concern to small businesses.[4]

Small and medium-sized enterprises (SMEs) account for the largest share of the private sector employment and value added in developed and emerging economies, and the European Commission’s public support targets for SMEs for OECD 2019 and World Bank 2020 are crucial for post-crisis recovery.[5]

HOW DOES THIS IMPACT THE LEGAL SECTOR?

Results of a McKinsey survey conducted in November 2020 suggest a glimmer of hope for small and medium-sized companies (SMEs) in the UK, which are struggling to thrive amid the severe trade restrictions imposed by the COVID 19 pandemic. 52 per cent of the surveyed 653 SMEs at the time said they had been in business for less than 12 months and trading conditions were even worse at the time. [6] This will introduce work for law firms in areas of restructuring and employment.

The 52 percent of the 653 SMEs surveyed represent an improvement over the results of a similar survey in August 2020 when 57 percent (60 percent) of those surveyed said they could be unemployed in 12 months. However, the sample was heavily in the retail sector, where we found that 43% of companies had already closed and employment had fallen by 40%. The most worrying outlook is not just for SMEs, but for the wider economy, with SMEs accounting for 50 per cent of total turnover for UK companies and 44 per cent of the total workforce.[7]

In line with the above, it is considered appropriate to mention that the projected losses of small and medium enterprises in China are expected to reduce by another 20% to $6.7 billion (Khan et al). In this respect, as indicated in the heading below, which is considered relevant, the novel coronavirus has its effects not only on the economic capacity of companies, but also on the channels they use in their operations, in particular supply and demand channels (Brown et al, 2020; Su-Sun et al., 2021). The concerns raised in this article are that the crisis, which stems from man-made and natural causes, has the potential to cause significant damage to businesses by destroying trust between them and their respective consumer bases (Donthu and Gustafsson).[8]

In the United States, a special weekly survey of the Census Bureau measures the impact of COVID-19 on small businesses (Buffington eta., al., 2020) [12]. The findings underscore companies' expectations about the long-term impact of the virus and their perception of the aid programs offered by the government. A survey of over 5,800 small businesses was conducted in the US between 28 March and 4 April 2020 to examine the economic impact of Coronavirus 2019 (COVID-19) on the small business sector.[9]

The questionnaire contained several questions on basic information about companies and their characteristics, such as the size and impact of the COVID-19 outbreak on the industry, declining sales and profits, survival time, normalization time and calls on the government to reduce the burden. Participation in the survey is voluntary and financial compensation is offered for the conduct of the survey. The sample covered by the survey was large enough to include firms in most large industry groups and size categories of state-owned enterprises.[10]

Today, SME’s need cash injection more than ever and law firms will need to tread carefully to guide their clients towards achieving economic security.

Written by LawMiracle