McKinsey: How SMEs are weathering COVID-19 storm
Productivity of European small and medium-sized enterprises (SMEs) was well below that of large companies during the COVID-19 pandemic and their future survival depends on government support, says a report from consultants McKinsey & Company.
“As and when the crisis fades, governments might therefore choose to help SMEs strengthen their resilience by, for example, helping them to find new markets or digitise more rapidly. SMEs have the potential to be an economic and employment engine after the crisis, but governments’ responses could prove critical,” outlines the report.
While SMEs have been the lifeblood of the European economy, more than 50% surveyed in August 2020 by McKinsey & Company feared they may not survive longer than a year. A stark indication how hard they have been hit by the pandemic.
Some 70% of respondents in five European countries - France, Germany, Italy, Spain and the United Kingdom - said their revenues had declined because of COVID-19, with severe knock-on effects.
One in five companies were concerned they might default on loans and must lay off employees, while 28% feared they would have to cancel growth projects. Despite receiving government help, such as tax breaks or payments to furlough staff, more than half predicted they would not be in business in 12 months.
The survey; COVID-19 and European small and medium-sized enterprises: How they are weathering the storm takes an in-depth look at revenue, SME survival and Government support after polling more than 2,200 SMEs.
The survey reveals that revenues have fallen for the majority of SMEs in Europe since the onset of the pandemic with Spain and Italy being hit the hardest. A snapshot of statistics reveals the following:
- The country with revenue that reduced the most was Spain with 33% followed by Italy and the UK both reporting a 30% reduction.
- One in five SMEs are concerned about meeting payment obligations (Spain 26%) and retaining staff (Spain 27%).
- On average nearly one in three SMEs fear they will have to postpone growth initiatives with Spain at 37%, UK 30% and France 27%.
- Concern about this growth in each industry sees accommodation and food services topping the survey with 39%, arts, recreation and entertainment at 38% and retail and wholesale at 32%.
- Quizzed whether they feel the economy is very weak in the current climate at total of 56% of SMEs in Spain agreed, followed by Italy at 49% and the UK with 48%.
At its current rate one in 10 SMEs are predicted to file for bankruptcy within the next six months.
“Concern was highest among the largest companies (those with 50 to 249 employees) in Italy and France, where 21% - almost double the average - expected to file for bankruptcy in the next six months,” reports McKinsey & Company.
“By comparison, sole traders in Spain were most concerned, with 19% expecting imminent bankruptcy compared to only 6% of companies with 50 to 249 employees.”
According the report among industrial sectors, logistics had by far the highest number of expected bankruptcies (22%). Agriculture, accommodation, food services, retail and wholesale followed, though at a lower rate of 13–15%.
The McKinsey report quizzed participants to consider how their businesses would fare under three different COVID-19 scenarios, where revenue held steady, decreased or increased. They reported the following:
If revenues remain steady 55% of SMEs worry they may shut down by September 2021.
If revenues decreased by a further 10 to 30% 77% said they may be out of business by September 2021.
If revenues increased by 10 to 30%, 39 percent of SMEs said they may nevertheless be out of business by September 2021.
“Those scenarios could be influenced by the extent to which SMEs continue to receive government support,” commented McKinsey.
One fifth have already applied for this support with another one third intending to apply. The Organisation for Economic Co-operation and Development (OECD) reports that policies are beginning to shift from those aimed at helping SMEs survive to those helping them recover.
The report concludes that the future of SMEs will depend on the support they receive from their respective governments.
5 minutes with... Janthana Kaenprakhamroy, CEO, Tapoly
Founder and CEO of award-winning insurtech firm Tapoly, Janthana Kaenprakhamroy heads up Europe’s first on-demand insurance platform for the gig economy, winning industry awards, innovating in the digital insurance space, and leading with inclusivity.
Here, Business Chief talks to Janthana about her leadership style and skills.
What do you do, in a nutshell?
I’m founder and CEO of Tapoly, a digital MGA providing a full stack of commercial lines insurance specifically for SMEs and freelancers, as well as a SaaS solution to connect insurers with their distribution partners. We build bespoke, end-to-end platforms encompassing the whole customer journey, but can also integrate our APIs within existing systems. We were proud to win Insurance Provider of the Year at the British Small Business Awards 2018 and receive silver in the Insurtech category at the Efma & Accenture Innovation in Insurance Awards 2019.
How would you describe your leadership style?
I try to be as inclusive a leader as possible. I’m committed to creating space for everyone to shine. Many of the roles at Tapoly are performed by women and I speak at industry events to encourage more people to get involved in insurance/insurtech. Similarly, I always try to maintain a growth mindset. I think it’s important to retain values to support learning and development, like reliability, working hard and punctuality.
What’s the best leadership advice you’ve received?
Build your network and seek advice. As a leader, you need smart people around you to help you grow your business. It’s not about personally being the best, but being able to find resources and get help where needed.
How do you see leadership changing in a COVID world?
I think the pandemic has proven the importance of inclusive leadership so that everyone feels supported and valued. It’s also shown the importance of being flexible as a leader. We’ve had to remain adaptable to continue delivering high levels of customer service. This flexibility has also been important when supporting employees as everyone has had individual pressures to deal with during this time. Leaders should continue to embed this flexibility within their organisations moving forward.
They say ‘from every crisis comes opportunity’, what opportunities do you see?
The past year has been challenging, but it has also proven the importance of digital transformation in insurance. When working from home was required, it was much harder for insurers to adjust who had not embedded technology within their operating processes because they did not have data stored in the cloud and it caused communication delays with concerned customers at a time when this communication should have been a priority, which ultimately impacts the level of customer satisfaction. This demonstrates the importance of what we are trying to achieve at Tapoly in driving digitalisation in insurance and making communication between insurers and distribution partners seamless.
What advice would you give to your younger self just starting out in the industry?
Start sooner, don’t be afraid to take (calculated) risks and make sure you raise enough money to get you through the initial seed stage.