Conclusions - Crisis Management Strategies of Small and Medium- Sized Enterprises during the CO

1. What are the main challenges to Russian SMEs in the economic and political context brought about by COVID pandemia?

Economic impact

The pandemic outbreak has significantly altered the business environment for SMEs.

Indeed, the situation has led to rapid structural changes and accelerated all the processes that were slowly developing during the last several years. Still, despite the progressive stimulus that the pandemic gave to the SMEs development it has as well an obvious adverse impact on enterprises and put in danger all common business practices and well-established techniques.

Except for 2 companies, all SMEs undergo the temporary office shutdown and have lost time on the organization of distant operations processes. The interviewed entrepreneurs stated that their financial losses started from 15 up to 35% in comparison to the analogous period of the previous year. The owners of the business have shared their opinion on the most acute problems that they encountered due to the COVID-19: temporary loss of clients, inability to adjust long- term contracts to the new conditions, shortage of liquidity, interruption of contracts. The results of this research do not contradict the Report of the RSPP on the situation of Russian companies amid the COVID-19 pandemic. Unexpectedly, all companies involved in the study have stated that the recovery process has already started (some of the respondents even managed to exceed the results of the previous year) and most of them believe that the business will fully restore by the end of 2021. Without a direct question, all of the respondents within their answers have mentioned increased flexibility and digitalization as the main trends during the quarantine months. A peculiar point about the SMEs in Saint-Petersburg and reportedly in Russia as a whole is difficulties in acquiring loans from banks and other financial organizations. This issue has been dramatically reflected in lending to small businesses during the crisis: of all the companies only the enterprises 2 and 4 have managed to negotiate with the banks' representatives, others utilized side sources mostly borrowing from friends or partners. These findings reflect the description of the 2015 crisis:

“ To reduce risks, banks have increased their lending to large corporations, reducing lending to small and medium-sized businesses” (Khlopunova,2017). The owners of the 1 and the 5 firms claimed that in previous years and during the 2020 crisis cial programs did not fully meet the needs of small businesses, and contained bureaucratic obstacles. The poor information of SME representatives about the details of the government program became a topical issue. Several

respondents stated the total misunderstanding considering the business profile priorities specified in the program.

Further, it should be noted that all of the small business representatives have agreed about the fact that the government's financial aid was mostly directed towards the medium and big business and small enterprises' inquiries in the majority of cases were rejected. Still, from the economic perspective businessmen have highly valued the suspension of tax inspections and other audit measures from the state's side. The SME owners implied that further government aid may consist of: reduction of the interest on small business loans, simplification of the application for State Support, assistance in the digitalization of business processes (not only for big enterprises but also for SMEs)

Social impact

Analyzing the answers of the business representatives it can be concluded that the social impact of Coronavirus on SME is more unequivocal: all managers have mentioned that their employees worked under great pressure and the productivity of most staff members has decreased.

Moreover, the entrepreneurs with more than 5 subordinates also mentioned that daily team meetings that in previous times took not more than 15 minutes, with the implementation of digital means of communication have become longer and less effective. Ambiguity and health cautiousness according to businessmen's opinion has made their subordinates less cooperative and at times even anxious. The common opinion, nevertheless, is that close obligatory regular discussion sessions, as well as a distinct task for all members, have helped to preserve the organizational structure and not to suspend economic activity. For the employer's side, the hardest decisions were taken considering the layoffs of the personal. Business owners suggested that this measure was implemented only if all the others had totally failed to improve the situation. They suggested that due to the small number of workers the bonds within a company are very strong and even if the employee was fired the entrepreneur dealt with him on keeping in touch in case the economic revitalization. Another finding that is consistent with the latest research of Розенфельд Н. Я., Мальцева, В. А. (2020) is the digital literacy gap that has shown its importance in the context of the accelerated digitization of economic activities. Thus, all business owners have stated that digital skills are considered as a critical component of overall competence especially in regard to the elderly employees.

Managerial implications

The research findings may imply that those enterprises whose owners have used the

strongest sides of this organizational structure in the most effective manner handled the crisis in an optimal way and even managed to expand their operations. By this, we imply the early response and considerable flexibility due to the flat structure. Namely, there are examples of the car rental service and the furniture selling company. The first firm's owner shortly after the signs of coming pandemia has purchased a wholesale amount of sanitizer gels and medical masks at the precrisis cheap price, obviously, after the COVID-19 outbreak in Russia the prices " increased insanely"

but the amount prepared was enough to provide the customers during all the month of restrictions and strict health policy. The second example is related to the quick safeguarding of the stock of goods: as all of the furniture comes from abroad the company owner has predicted that the situation on the border might change for the worse and disruption may interfere with the operations.

Therefore, he has increased the stocks of most popular models and when the demand has risen significantly, he has been well prepared.

Another point that deserves attention, is the role of previous experience in successful crisis management. Despite the fact that some entrepreneurs admitted lack of action plan at the beginning of the crisis, all of the respondents mentioned the great value of the experience that they get during the previous economic turmoil. Aftermath measures, and thorough documentation were among the valuable insights from the previous years. We recommend that small businesses consider long- term and adoptive crisis management strategies, not only focusing on financial factors but also fully taking non-financial factors into account. Owners, top management, as well as different levels of personnel, should be involved in developing crisis management mechanisms according to their needs.

2. Which are the strategies that managers implemented to face the COVID crisis? Which of those strategies have been having more success?

The information that was provided by the entrepreneurs has contained many thoughtful insights considering the crisis handling strategies that were utilized within the COVID-19 outbreak. Firstly, the striking point is that not all businessmen have prepared an action plan shortly after the first signs of upcoming pandemia (the company 1 and 8 have confessed that there was no special strategy in their cases, in contrast, they prefer "to go with the flow"). Despite the substantial crisis experience of everyone involved in the research, the analysis has shown that not all of them were ready to adjust quickly to circumstances. Furthermore, the predeveloped strategy was deliberated only by firms whose owners have close ties with the foreign market (China, Germany, Belorussia). Other companies admitted that developed an action plan in a rush manner.

"As my industry does not involve close face-to-face interaction I didn't expect that the pandemic will affect us strongly" (firm 1)

"At that time I had a high season, thus there was simply no time to sit and think about a plan of actions in case the pandemic will interfere" (firm 3)

"Usually in spring my business starts to be active and generate a substantial share of yearly profit after the winter slow down, thus I simply did not have free resources to make better preparations" (firm 5)

Nevertheless, not all the mechanisms that have previously minimized the crisis disruption were applicable this time. For instance, price manipulation, offline advertisement, special offers for offline retailers as well as long-term contract with suppliers have lost their efficiency. The most successful measures will be discussed further, prior it can be suggested that entrepreneurs share the opinion that those sectors that were not straightly affected by the restrictions will recover much faster than after the previous crisis. Simultaneously all steps taken to strengthen the firm unlike during the 2008 and 2018 will probably be permanent and not just temporary (such as distance working, minimization of face-to-face operations, digitalization, SMM marketing, "economical production".

Exit Strategy

The collected information leads to the conclusion that none of the enterprises have pursued the exit strategy. Every respondent has admitted that in February, March, and April the revenue has fallen dramatically or at least significantly, but the expenses have decreased as well, some losses were compensated by subsidies, other by credits or borrowings. With the easing of restrictions associated with the pandemic, 8 interviewed entrepreneurs claimed to began investing actively either in the development of their companies or in their maintenance, which indicates that small and medium-sized businesses have adapted to new conditions. Implicitly the expressed view is confirmed by the recent data from the labor market: "Small businesses of Saint-Petersburg has published 40,000 vacancies. This number grew by 12% in January and 35% in February"

(Коваленко, 2021).

Innovation Strategy

Within the research certain activities associated with the innovation strategy have been exposed by the actions of several entrepreneurs. It can be derived that company 2,3 and 4 have

pursued the overmentioned strategy in the majority of their business spheres, namely firm 2 in operations and customer service, firm 3 in operations, customer relations, and interaction with suppliers, firm 4 has reported the same results as firm 3. Despite the fact that in quantitative terms the company 7 has fewer activities that can be attributed to the discussed strategy, the owner has stated several crucial points in terms of operations that were innovative in his field of business.

The main obstacle that prevented other firms' owners from this type of crisis management strategy is lack of resources and namely shortage of free funds, for example, the businessman that runs company 1 suggested that he has had a plan to expand the use of new technologies within the crisis period, but due to delays in payment of bills by government customers, he was not able to fulfill the project.

With reference to the production, owners of the company 2, 4, and 7 have shared a notion that the necessity to optimize the processes has pushed them to modernize the equipment. In case of the firm 2, it was additional PCs to let employees work distantly, company 4 has acquired a piece of new machinery, and the owner of enterprise 7 purchased cameras for virtual presentations.

The methods mentioned are in line with the conclusions of Caballero-Morales, S.-O. (2021) who stressed the taking advantage of innovative solutions can enable a "better use of the limited resources of SMEs". Several entrepreneurs have said that they tried to use videotelephony software not only to communicate with the team but also to improve service by means of new technologies (firm 7 has organized video presentations via Zoom and Teams for the new clients). As for customers and marketing side the entrance in new platforms and contact with new dealers. For example, enterprises 2, 3, and 4 have significantly expanded online marketing projects and the first 2 of the overmentioned companies despite SMM have also explored such online retailers as Wildberries and Ozon as new counteragents.

Retrenchment

Retrenchment in form of cost-cutting measures and the partial reduction of the company's activities has been thoroughly utilized by the owner of the 8's firm. The observation suggests that despite the extensive experience the manager was not fully prepared for the upcoming circumstances (he suggested that initially there was no action plan) and looking back he suggests that would have hedged his operations in a better manner (mainly control over the counteragents and debt-consolidations). This company was the only one that has fully undertaken policy in all business aspects. A crucial finding that is supported by the Pearce, J. A., & Robbins, D. K. (1994) this type of strategy was not an "automatic consequence of decline for enterprise", but rather an informed and considered choice. Shortly after acquiring the information, considering the conduct

of the supplier that has broken the contract (the situation has been described with details within the interview) the manager has decided to take measures to sustain. This small enterprise has narrowed the product range to ensure the quality and execution of the contracts. Additionally, to narrow the business scope but simultaneously to retain customers one employee has been fired, which according to the manager, free additional sources of financing contracts' sales for long-term clients. An important notion, highlighted by the entrepreneur, is that all the measures addressed the issue of retaining long-term clients, rather than acquiring new ones. The explanation that was given to such behavior was that simplifying the multifaceted nature of his business would ease the burden and enable him to effectively prepare the base for future restoration. Summing up, the pandemic restrictions were not the main stimuli for the entrepreneur to pursue a retrenchment strategy, rather the conduct of business partners. Nevertheless, the result of the analysis help to link the current case with previous research as the owner of the 8's company has shown a balanced approach towards the actions which constitute the retrenchment strategy, rather than simply following the circumstances.

Persevering

Persevering as an implementing measure in all fields of business so as to keep the current company conditions and marketplace for as long as possible has been a surprisingly commonly used crisis management strategy. The study results suggest that a strong impact of the crisis on SMEs has resulted in the utilization of a mix of standard practices. Overall, for each company (1, 5, and 7) to a different degree, but this behavior has successfully contributed to the mitigation of the decline and commencement of recovery. The particular policy in operations that was mentioned often was shortened working hours. The enterprises 1 and 2 have reduced the duration of shifts to 6 hours, while the owner of the 5 company has made a workday last for 5 hours. All businessmen mentioned that the employees responding positively as it helped to hold our staff together. Analogously, with the temporary reduction of salaries for 3-5 months on 15-30%

(currently they have reached the pre-crisis level). Regarding the marketing side bundles and special offers were used to stimulate the demand. This was done among others to prevent debts and cash gap as all 3 companies admitted the constant risk of these issues due to the prolonged collection period (latter being applied to support suppliers and preserve business contacts)

Among the participants on the operational level, several common measures were used to remain sustainable. The owners of the enterprise 1, 2, 4 and 7 have received requests of delivery/payments postponement and in turn, have sent several analog letters to counteragents.

This system of close communication and early notification according to the overmentioned

entrepreneurs has "decreased uncertainty and stabilize the situation before it got out of hand".

Government stimulating mechanism

“Even though our business has been included in the list of severely affected by the pandemic, our application for a loan that would cover salaries expenses was rejected. Moreover, Sberbank who was in charge of this matter for 2 next month has several times changed the official reason for the rejection. All my business-related peers have had the same circumstances. These make me believe that in Saint-Petersburg the distribution of government resources has gone badly"

(firm 5). The owner of the 8's company has described a similar situation:

" My company wasn't on the list of the seriously affected, therefore there was little hope to get support from the State. However, we have a lot of hopes expectations of the banks’ attitude to us. What I mean is that there were instructions from the Saint-Petersburg government to resolve the points of contention in favor of small business companies and thus we tried to get our loan refinancing but 3 banks denied my firm without elaboration or comments.” (firm 5)

Another interesting point considering the government support is that 2 out of 3 enterprises that according to the final analysis adhered to the innovation strategy have been the only one who managed to acquire the help. These were enterprises 3 and 4 and both their comments on government assistance expose their mixed attitude towards the effectiveness of State measures:

“My company probably shouldn’t have gotten the state support as our field of activities is not on the list of companies like tourism agencies or restaurants. In my opinion, we managed to acquire the resources only because we have a high-quality lawyer in our team. Indeed, she has done a great job to collect and prepare all the documents and complete the form from the bank. I believe that the last point was the reason why many of my acquaintances have got a rejection from the financial institutions.” (firm 2)

“I have a long-term acquaintance with the Sberbank manager and also several lawyers work in my company. For sure only deliberate answers for more than 20 of my question (considering the terms of support acquisition) of the over mentioned banker and a perfect work of the lawyers' division has helped to achieve the goal. Overall, I believe that it is not completely fair as small companies that can’t afford professional help in this field were initially in a worse position by

sending to the bank wrong documents and being rejected as a result”. (firm 4)

3. What factors influence strategy adaptation under new challenges of the COVID-19 crisis?

The information obtained from the business community makes it possible to determine several points in what the coronavirus crisis may be experienced as an unconventional one. To facilitate the analysis it can be divided on the supply and demand side.

On the supply side according to the participants they were damaged not only in terms of goods or intermediary parts but also by the labor quality and quantity. Indeed, certain answers suggest that unlike in previous years when certain economic turbulence have filled the labor market with a relatively cheap and ready to work professional workforce, this time due to the great virus danger the picture was different:

“In our company, there are only several qualified staff members, they have specialized training, thus it really complicated all the processes, when due to the age restrictions one of them had to work from home. Of course, it was much less effective as his digital skills are on a low level and simple things tend to take much time” (firm 1)

“At first it was fine, but in April one of the employees was contaminated by COVID-19, and dropped from the job for 2,5 months. Apparently, I was not able to simply fire him as he has worked with me for 10 years, but all his functions were on my shoulders as there was no money to pay the seak leave and salary for a part-time employer (the cheap migrant workers have already left the country by then). It was one of the hardest experiences in my life as I had to combine managerial functions and tasks of repairer/house service provider at the same time.” (firm 3)

However, the supply of intermediaries was disrupted as well. While during the last economic decline the SMEs that have imported goods from the EU was under the threat due to the policies of economic sanctions, this time not only them but also ones who purchase from China and even Belarus were in danger.

“Certainly we were very concerned with the supplies from our Chinese partners and our fear, unfortunately, was justified as the delay was almost for 2 months. We were lucky because the safe bag helped us to meet the restored demand fully, but still, such situation with our suppliers was for the first time that I can recall”. (firm 2)

“I was really afraid about the situation on the Russia-Belarus boundary. Due to the

No documento Crisis Management Strategies of Small and Medium- Sized Enterprises during the COVID-19 Pandemic: Saint- (páginas 68-79)