he SME sector may be a generator of growth and innovation in Poland, but it must be given sufficient opportunity. Anti-crisis aid for this sector cannot consist of measures that merely maintain the status quo but of initiatives to provide a radical pro-development impulse. Well-targeted assistance will bring quick results thanks to the flexibility of companies in this sector and the courage of their leaders.
Author: Stanisław Pisarski, President of the Board, Corporate Strategy Adviser, Factor Consulting
The biggest shock after World War II
The COVID-19 crisis is the greatest challenge to societies and economies in Europe and the whole world since World War II. Over 1.8 million deaths from coronavirus by the end of 2020, rapid and violent recession, devastated economies in Europe and many countries all over the world. The fact that the Polish economy coped fairly well with the impacts of the crisis in 2020 is only a small source of comfort. Let us not be lulled by the fact that vaccination against COVID-19, for which we have so much hope, has just started. After all, we are expecting a third wave of the epidemic, and another lockdown could be deadly for many companies that are still afloat. After the crisis, it will also be necessary to continue providing products and services to consumers and the economy. Those who survive and make good use of this difficult time to solve their problems, including those experienced before the pandemic, will be the first to take off from the starting blocks and use the rising tide to gain a competitive advantage in the new reality.
During the six months of the pandemic, enterprises from the transport, tourism, culture, and entertainment sectors accumulated a total debt of over PLN 1.2 billion. Subsequent restrictions and lockdowns particularly affected companies from the SME sector (micro, small and medium-sized enterprises), which do not have adequate financial resources to survive such a large slump in demand. Besides, most of them do not have contingency plans, do not have the necessary know-how to adequately absorb market shocks and restore profitability quickly. Living from day to day, they are not able to break away from the treadmill and fighting fires caused by the unstable situation.
The SME is the foundation of stable development of the country
The 2020 report on the condition of the small and medium-sized enterprise sector prepared by PARP (Polish Agency for Enterprise Development) indicates that the SME sector accounts for 99.8% of enterprises in Poland. More than half of micro, small and medium-sized enterprises operate in services, one in four in trade, one in eight in construction, and one in ten in manufacturing. The SME businesses in the service sector offer professional, scientific, and technical services, transport and warehouse management as well as health care and social assistance.
The SME sector is responsible for nearly 50% of Polish GDP and employs 6.8 million people. [1] The aid commonly offered to entrepreneurs by governments in various countries, including Poland, is intended, primarily and understandably, to help them survive the crisis. It is supposed to save companies from bankruptcy and help save jobs. The Polish anti-crisis shield was also designed in this way. Government support is offered primarily to the industries which have been severely affected after the introduction of pandemic safety rules, i.e. hospitality sector (hotels and restaurants), entertainment and recreation, and trade. The purpose of the allocated aid funds is primarily to support companies in financing fixed costs and improving their cash flow thanks to loans, non-returnable standstill benefits, and exemptions from paid contributions.
The review of government anti-crisis programs offered to entrepreneurs in Germany, Great Britain, Ireland, the USA, and Canada shows similar trends in supporting the SME sector, although these programs seem better developed and more comprehensive. Due to different social security systems, legal and tax solutions, there is no point in comparing such programs in different countries. However, it is worth paying attention to the selected solutions in the context of the needs of not only direct beneficiaries but also the economy as a whole.
The development right after survival
The analysis of the German stimulus package indicates an attempt at pro-developmental targeting of some aid funds to investments in the areas that are considered crucial for the country’s market and economic development, such as AI, quantum computing, 5G and 6G networks, digital transformation, electromobility, etc. Importantly, they are aimed not only at the companies demanding support but also at these companies’ supporters. Their task is to increase the competitiveness of program beneficiaries, maintain the investment attractiveness of selected sectors, and protect highly specialized jobs. Therefore, when looking for the most effective forms of support for enterprises from the SME sector, we should not limit ourselves to simply administering a drip to keep them alive. First of all, the crisis reveals unresolved problems in poorly managed companies. Keeping them alive will only prolong their decline. In such a situation, it is better to lead to a controlled bankruptcy and support their owners and employees in quickly returning to the market.
The efficiency of spending taxpayers’ money should also be an important topic of discussion. Ireland is one of those countries that use a mechanism of protecting the effectiveness of spending public funds for financial support to enterprises. It links the allotted funds with advisory support provided by carefully selected consultants. [2] There is no doubt that in the first stage of anti-crisis measures, in a situation of high uncertainty and volatility of the environment, valuable human and organizational resources should be protected. The next stage, however, should consist of pro-development actions, and enterprise support policy in OECD countries seem to confirm this viewpoint.[3] Enterprises from the SME sector are generally characterized by lower productivity, innovation, propensity to invest, and crisis resistance. Their access to advancement capital and know-how is difficult. However, they have a huge and still growing importance for the economy. They are an employment engine, they are more agile and they account for a significant part of the GNP.
It is commonly believed that it will take at least two years for the economy to recover from the current crisis. This time should be used to strengthen enterprises of the SME sector and enable them to compete in the newly emerging post-covid reality. Certainly, we will quickly see a rebound in industries whose closure had a strong impact on the social mood of consumers, including industries related to entertainment, gastronomy, and tourism. Consumers miss the freedom of the pre-covid era and will try to make up for the traumatic experiences of the epidemic. However, it is not the rebound of the industries severely affected by COVID-19 that will be responsible for the revival of the economy. It is a rapid shift into new tracks set by post-epidemic trends. Large enterprises will manage, but the SME sector needs considerable support, which must be provided by the state.
The world has changed
It is impossible to describe briefly the scale of changes caused by the pandemic. Many of them are already clearly visible, some of them are more subtle and we will notice their effects only after some time. In the first months of the pandemic, processes related to digitization and what we call the fourth industrial revolution, i.e. the Internet of Things, Services, People, and Data, accelerated very strongly, and with these processes, cybersecurity has increased in importance, as shown by a recent global survey of entrepreneurs carried out by McKinsey.[4] The experience of the pandemic changed the approach to remote work and virtual business meetings, redefining the meaning of obvious things such as offices, business trips, or training in conference rooms. The importance of multi-channel strategy in retail sales, supply chain risk management, and digital customer experience has increased even more.
Adaptation to the new situation on the global market certainly requires companies in the SME sector to access know-how and advancement capital. But effective management consulting support is even more important here. It is not simply investing in new technologies and innovations that will make a difference. It is about a thorough reconstruction of business models, guiding employees and leaders through the process of changes so that innovative solutions bring the intended results. The results in the form of increased productivity and employment, greater resilience to crises and global competition, greater international activity, and innovation in the areas of processes, products, organization, and marketing.
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[1] https://www.parp.gov.pl/storage/publications/pdf/ROSS-2020_30_06.pdf
[2] https://www.enterprise-ireland.com/en/funding-supports/Company/Esetablish-SME-Funding/Covid-19-Business-Financial-Planning-Grant.html
[3] Coronavirus (COVID-19): SME policy responses (oecd.org)
[4] https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/how-covid-19-has-pushed-companies-over-the-technology-tipping-point-and-transformed-business-forever
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