How close did you come to meeting your business goals in 2020?
If you are tempted to roll your eyes at the question and mutter how survival itself has been a struggle, you are not alone.
The year 2020 has been particularly chaotic. As Covid-19 spread across the country, professional goals set at the start of the year were thrown out of the window, resulting in widespread disruption to businesses.
Affected by travel restrictions, reduction in manufacturing production, supply chain disruptions, limited export opportunities, subdued domestic demand, weakened oil prices, and decline in employment, the UAE economy (non-oil real GDP), has contracted by 9.3 per cent year-on-year in the second quarter after a drop of 2.7 per cent in the first quarter.
According to Dun & Bradstreet’s Commerce Disruption Tracker, certain industries in the UAE such as travel and tourism, hospitality, and retail, have been severely affected with high levels of disruption. Approximately 89 per cent of the UAE businesses operating in these very high-risk industries have faced some form of disruption due to the pandemic.
The non-oil UAE economy is expected to contract by 4.5 per cent in 2020 impacting businesses of all sizes.
SMEs, seen as the backbone of the economy, have been vulnerable to these turbulent times. Accounting for 94 per cent of all companies and employing 86 per cent of the private sector’s workforce, SMEs contribute 60 per cent of the country's GDP. Hence, supporting SMEs has been a priority, and the sector has attained a lot of attention from the UAE government, in the form of support and economic stimulus packages.
Though growth outlook remains uncertain, small businesses need to focus on turning current challenges into opportunities. As we approach year end, SMEs need to move forward and start planning for 2021 and beyond. SMEs need to fuel growth and not let one word, Covid-19, get in the way of achieving professional goals. But, how can SMEs weather the crisis and manage continuity during these uncertain times?
“Thankfully, we are living through digital and data revolution,” says Manjeet Singh Chhabra, Managing Director – CRIF Gulf (Dun & Bradstreet). “SMEs need to leverage on the 3Ds - data, digitalise, and diversify - in the current situation.”
The need for data-driven decision-making is more important than ever for businesses to monitor and mitigate risks, uncover alternative suppliers, find potential customers, expand to new markets, and identify profitable growth opportunities.
Majority of SMEs face multiple challenges, including supply chain disruptions, unmet revenue requirements, late payments, cash flow crunch, and high operating costs.
Since the pandemic, punctual payments have sharply deteriorated in the UAE putting immense financial strain on SMEs. Dun & Bradstreet’s trade data shows a marked decrease in prompt payment performance in 2020, with the share of businesses making on-time payments going down from 55.1 per cent in December 2019 to 10.1 per cent in June 2020.
As SMEs have thinner financial buffers, limited access to finance and depend heavily on cash flow to meet payroll and other overhead costs, they are unable to absorb costs of late payments, which in turn threatens their survival. On the supply side, disruptions result in significant loss of revenues.
It is therefore crucial for businesses to carry out due diligence on prospective and existing customers, and suppliers to better understand the potential future impact on operations and cash flow.
“There is a need for businesses to be aware of the financial health of customers, suppliers and their supplier’s suppliers to mitigate risks,” says Chhabra, noting that CRIF Gulf (Dun & Bradstreet) has supported several UAE firms to analyse the impact of Covid-19 on their customer base and supply chain, to help them make informed decisions related to contract renewals and risk exposure.
Looking ahead, it will be critical for SMEs to harness robust data and insights to monitor counterparty risks to weather the crisis.
Digitalisation and diversification for growth
The pandemic has forced changes in behavioural and consumption patterns across the world, and some of the changes are here to stay. The new reality is characterised by social distancing, remote work and enhanced digital adoption.
These new behaviours have led to radical shifts in many facets of a business. However, not all businesses have been impacted the same. Sectors including travel, hospitality and dining have been severely impacted, while certain sectors such as e-commerce and healthcare have witnessed enormous demand during the pandemic.
Going forward, factors such as altered customer behaviour and enhanced digital adoption will influence the business environment. It is therefore essential for businesses to rethink their operating models to meet changing requirements of the market.
There is a need for businesses to expand opportunities through diversification. There are many examples of how businesses have pivoted their product portfolio to identify alternative revenue streams. Textile companies now manufacture face masks and protective wear to meet demand for medical-related products during the pandemic.
The crisis has pushed SMEs to adopt an agile approach and expand into new markets; innovate and develop new products and services; highlight existing products to fill gaps or unmet needs; and adopt as well as accelerate digital transformation.
Given the contactless world, digitalisation has become a necessity for businesses’ survival and growth and will continue to be on the rise post-pandemic.
The way forward for SMEs is to be agile and adapt to the new normal, as well as reimagine the next normal. SMEs will need to leverage data and insights and digitalisation to help them weather the storm and grow. It truly will be the survival of the smartest.