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Small and medium-sized enterprises (SMEs) – case studies

How publicly-funded initiatives can can help cities attract new businesses and improve SMEs performance

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Why support small and medium sized businesses?

Small and medium sized enterprises (SMEs), particularly those in the most innovative sectors, are important drivers of employment and output growth. An efficient business support system, easy to navigate, evaluate and manage is essential to facilitate the creation and prosperity of businesses.

Publicly-funded initiatives such as business advice, improved access to finance and funding, and knowledge exchange and innovation, can help cities attract new businesses and improve private-sector performance, in particular for SMEs.

Use the table below to find out more about how and what cities and places in the UK have done to support and grow their SME base. These case studies highlight what the cities did and their self-reported outcomes.

To find out more about what types of policy interventions have an impact on local economic growth from across OECD countries, as well as evidence-based policy design guides, take a look at the What Works Centre pages on Business Advice , Access to Finance , and Innovation .

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Lessons on Resilience for Small and Midsize Businesses

• Tera Allas,
• Michael Birshan,
• Anthony Impey,
• Sir Charlie Mayfield,
• Jan Mischke,
• Lola Woetzel

A look at some companies that thrived during the pandemic.

Despite unprecedented challenges, many small to medium-sized businesses (SMBs) around the world have shown remarkable resilience and capacity to reinvent themselves. Many of the actions taken by the most effective large companies are mirrored (albeit on a smaller scale) by higher-performing SMBs. Leading firms in both size categories had the financial resilience, organizational capabilities, and strategic focus to continue to invest and adapt throughout the crisis. Most notably, they accelerated digitization, reorganized and reskilled for operational efficiency, and became more agile. Now is the time to take inspiration from companies that have thrived and to build resilience for the future. Small and midsize businesses that heed the lessons from this crisis are well positioned to weather the next one.

The Covid-19 crisis exposed stark differences in the fortunes of different small and medium-sized businesses (SMBs). Well-capitalized startups have weathered the storm better than cash-poor community businesses; manufacturers of PPE equipment have experienced unprecedented demand while hospitality venues have been shuttered; and digitally enabled retailers have been able to shift delivery and customer services online, pivoting into entirely new business models. While the overall shock to SMBs has been serious, some have survived, and even thrived. It’s not too late for others to adopt the practices that made those SMBs successful in such a tumultuous environment.

In April, the OECD estimated that, across 32 countries, 70 to 80% of SMBs had experienced a drop in revenue of between 30 and 50%. Larger businesses have been slightly less hard-hit as a group, but the pandemic amplified a divergence between leading companies and the rest. In the U.S., the revenue of companies in the top decile by economic profit was flat between the third quarters of 2019 and 2020, while revenue for other companies declined by 11%.

Many of the actions taken by the most effective large companies are mirrored (albeit on a smaller scale) by higher-performing SMBs. Leading firms in both size categories had the financial resilience, organizational capabilities, and strategic focus to continue to invest and adapt throughout the crisis. Most notably, they accelerated digitization, including automation and shifts to online channels and remote or hybrid work; reorganized and reskilled for operational efficiency; and became more agile, increasing the pace of both product and business model innovation.

Opportunities for Midsize Businesses in 2021

Such transformations could potentially produce a period of rapid economic progress once the crisis abates. Recent McKinsey Global Institute research found that productivity growth could be accelerated by 1% annually until 2024 in the U.S. and six large European economies. However, this upside can only be captured if demand growth is robust; the productivity-enhancing actions that leading firms take are replicated across the rest of the business population; and governments, companies, and individuals alike invest in their skills (in particular, skills for the future).

Whether due to future waves of the pandemic or other forces, there is likely to be some further economic turbulence ahead. Here are a few lessons leaders of small to medium-sized businesses can take from companies that have been successful during the crisis.

Deeper digital capability

The world of business has, of course, been moving online for a while. Pre-pandemic, more than 80% of SMBs in the U.S. and Europe had a company website, and more than two-thirds had some employees working via mobile devices, according to European Commission data and a 2019 survey by the National Small Business Association . Social distancing, lockdowns, and remote delivery during the pandemic catapulted many businesses much deeper into digital : Cloud-based solutions, video communications, and online sales have become commonplace.

The businesses that have leveraged digital the most are those that already had digital experience. One survey found that SMBs that had previously adopted software tools were nearly 30% more likely to have implemented new technology since the crisis began. These organizations already had the confidence and capability to go through the often challenging implementation journey . In particular, they had learned that digitization is not a magic wand — it’s powerful only when integrated with people and processes.

Consider Blue Bay Travel , an award-winning travel agency based in Stoke-On-Trent, England. By 2019, just a year after upgrading its digital and data infrastructure, the company’s sales had increased by 71%. While technology — in this case, a state-of-the-art reporting suite — was integral to its success, so were two other ingredients: a restructuring of its marketing organization and an entirely new set of skills to analyze and interpret data.

With the external push of the Covid-19 crisis, now is the ideal time for SMBs to regroup and identify the areas where digital technology could further boost their business. Basic as it sounds, it’s likely to set them apart from competition. Indeed, in an Enterprise Research Centre survey conducted in September and November 2020, most SMBs in the UK said they weren’t planning to make further technology investments in the near term . This is in stark contrast to our survey of executives from larger companies, where 75% reported that they would further accelerate technology investment in the next five years.

Balancing remote and real life

Working from home and interacting virtually with customers has been a mixed blessing for businesses. While plenty of research suggests that both practices can drive productivity gains on average, the results very much depend on the individual circumstances. For example, remote employees’ ability to work efficiently is determined not just by the appropriate space, tools, and environment, but also by the effectiveness and flexibility of work scheduling .

In principle, SMBs have an advantage here: With fewer layers between leadership and frontline workers and fewer corporate policies, it should be possible for managers to find tailored approaches for their teams. Indeed, 44% of SMBs in the UK that have some flexible working practices expect to increase this activity over the next 12 months . This, in turn, is likely to significantly increase engagement and satisfaction and subsequently business performance ; up to 30% of office workers say that they would consider leaving their current job if not given the opportunity to work from home at least some of the time.

Online organic skincare school Formula Botanica has experienced these challenges and opportunities firsthand. Its business model has employees working in far-flung locations from Brazil to Slovakia. As the company has grown, it has had to work hard to maintain levels of energy and motivation among people working alone at home. In addition to recruiting people who are passionate about the business and its values, the company has put in place some basic but effective people practices to stay connected.

Each staff member has a line manager who holds regular one-on-ones with employees. More importantly, there’s a culture of “checking in” to make sure employees are okay. The company operates a day-to-day channel on Slack, where everyone says good morning and farewell on their working days. This means that even if employees’ working hours overlap with others’ only slightly, they end up chatting and sharing pictures and birthday messages and connecting on a personal level.

Since Formula Botanica’s staff is primarily made up of working mothers, the company has also made flexibility a priority. Employees choose the hours they want to work, helping them feel in control of their work-life balance. And whenever someone needs more flexibility, even on short notice, management has an open door for those conversations. These ways of working have proven instrumental in maintaining high performance throughout the crisis. But they also confer a significant longer-term advantage: staff satisfaction, loyalty, and productivity.

Skills transitions and recruiting

SMBs have traditionally faced more challenges than large businesses in attracting the best and most diverse talent. This can be a drag on management capability, innovation, and growth. For example, research has found that a higher workforce share of science and engineering graduates is associated with more new-to-market products and greater external cooperation. Similarly, businesses with highly diverse leadership are 70% likelier to report that the firm captured a new market than their less-diverse counterparts.

Yet, by implementing the flexibility advantages described — and often a purpose-driven ethos — smaller companies need not be shy about competing for talent against larger enterprises. This is the recent experience of Lux Afrique , a luxury concierge business. Despite scarcity of IT staff in general, the company managed to attract top performers to support its digital transformation by making flexibility a core part of its employee value proposition. Many organizations remain vague about their post-pandemic remote work setup. In contrast, at Lux Afrique, remote work is fully integrated into the day-to-day experience. For example, all work is managed via a platform called Monday.com, which allows everyone — remote or not — to see what’s happening, schedule their work efficiently, and even automate repetitive tasks.

Of course, it’s not enough to recruit talented people: They also need training and development and attractive career paths . Smaller businesses have historically been less predisposed to focus on these practices, but as the experience of global luggage delivery service Send My Bag shows, people development brings real rewards. The company has three-year progression plans for staff that outline the levels they can work up to and the subsequent pay increases they’ll see. The approach has been so successful that only one person has left the organization in the past two years.

Finally, with the demands of the workplace continuing to shift, businesses of all sizes are likely to face skills shortages . Rather than just looking outside to recruit new people, many SMBs would benefit from upskilling their existing staff — McKinsey research finds that the benefits could outweigh the costs in three-quarters of cases. Jessica Keir, the Operations Director of Newcastle-based car finance broker Refused Car Finance, agrees: “Providing staff members with a training budget and allocated time to step away from their daily workload to learn something new does not only boost the feeling of value within your staff, but it also impacts profits. When our employees feel supported, they work more efficiently and to a higher standard, which all contributes to the success of our business.”

Agility and innovation

Agility has been key to success, or even survival , during the pandemic. But stability and resilience were the hallmarks of high-performing businesses in the previous major upheaval: the global financial crisis of 2008. How can small and medium-sized businesses achieve both?

If the past is any guide to the future, the answer is two-fold. First, plot your post-pandemic course with potential future crises in mind. Even if the volatility caused by Covid-19 caught you off guard, don’t let that happen the next time a shock arrives. For example, find an operating model that will allow you to quickly scale the business down and up again , or build optionality into your business plan to make such flexing feasible. And, if you don’t already have one in place, articulate and embed a purpose and values that can outlast a crisis.

In March 2020, and in each subsequent lockdown, up to 95% of Dunsters Farm ’s customers — schools, restaurants, and catering facilities — closed overnight. To survive, it built an online food delivery business serving customers at home. As the UK emerges from Covid-19 restrictions, the company plans to continue its consumer business, with a specialized gift delivery service. In both its B2C and B2B offerings, it’s now better positioned to cater to customers who increasingly prefer locally sourced produce.

Second, expand the organization’s innovation capacity. Amid what economists call “creative destruction,” this really is a business’s only source of long-term advantage. In our survey, more than 60% of SMBs said that they were planning to increase the rate of product and business model innovation post-pandemic.

For SMBs, external collaborations are particularly important for building an innovation advantage. Staying close to customers’ experiences, engaging with suppliers, empowering staff, and joining local business networks are all powerful sources of new, practical ideas, as well as support . The participant feedback from Be the Business’ programs is clear: SMBs draw the most inspiration — and performance improvements — by interacting with and learning from their peers.

Despite unprecedented challenges, many SMBs around the world have shown remarkable resilience and capacity to reinvent themselves. Now is the time to take inspiration from businesses that have thrived and to build resilience for the future. SMBs that heed the lessons from this crisis are well positioned to weather the next one.

Note: All case studies quoted in this article are based on small or medium-sized businesses (SMBs) working with Be the Business, a charity based in the UK that enables SMB performance improvements through advocacy, mentoring, education, networks, and advice. One of the authors sits on the Be the Business Board of Trustees.

• TA Tera Allas is director of research & economics at McKinsey & Company.
• Michael Birshan is a McKinsey & Company senior partner in London.
• AI Anthony Impey is chief executive,  Be the Business , a charity that enables performance improvements in small and medium-sized business through advocacy, mentoring, education, networks, and advice.
• SM Sir Charlie Mayfield is the former chair of Be the Business, and the former chairman of the John Lewis Partnership.
• JM Jan Mischke is a partner at the McKinsey Global Institute and is based in Zurich.
• Lola Woetzel is a senior partner emerita of McKinsey & Company in Shanghai, and until recently, was the global leader of its Cities Special Initiative and the Asia-based director of the McKinsey Global Institute.

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Beyond financials: Helping small and medium-size enterprises thrive

Small and medium-size enterprises (SMEs) contribute significantly to economies around the world (see sidebar, “What are SMEs?”). In OECD countries, SMEs account for about 99 percent of firms and 70 percent of all jobs, 1 Enhancing the contributions of SMEs in a global and digitalised economy , OECD, June 2017. and they contribute more than 50 percent of GDP in high-income countries worldwide. 2 “The power of small: Unlocking the potential of SMEs,” International Labour Organization, October 2019. But between February 2020 and April 2021, 70 to 80 percent of SMEs across 32 countries lost between 30 and 50 percent of their revenues. 3 One year of SME and entrepreneurship policy responses to COVID-19: Lessons learned to “build back better,” OECD, April 2021.

What are SMEs?

The term small and medium-size enterprise (SME) refers to a broad swathe of companies, ranging from single-proprietor businesses to those with hundreds of employees and tens (or hundreds) of millions of dollars in revenue.

The precise definition of an SME varies by country but typically excludes large multinationals, state-owned enterprises, and conglomerates. For instance, the European Union defines an SME as an enterprise with fewer than 250 employees and turnover of less than €50 million or a balance sheet total of less than €43 million. 1 “SME definition,” European Commission, last reviewed October 25, 2021. In Canada, SMEs are enterprises with fewer than 500 employees. 2 “10 things you (probably) didn’t know about Canadian SMEs,” Business Development Bank of Canada (BDC), accessed December 2021. And Singapore classifies SMEs as enterprises with fewer than 200 employees or with annual sales turnover of less than $100 million. 3 “Topline estimates for all enterprises and SMEs, annual,” Singapore Department of Statistics, July 30, 2021.

Because they understand that threats to SMEs are threats to economies and societies, governments around the world have made supporting SMEs a priority throughout the COVID-19 pandemic through programs such as direct financial assistance, public guarantees on loans, and tax relief. 4 IMFBlog , “How countries are helping small businesses survive COVID-19,” blog entry by Esha Chhabra, Yingjie Fan, and Kazuko Shirono, March 9, 2021. While such financial support is beneficial, it does not necessarily set up firms to thrive in the long term and to combat the many converging challenges they’re facing, including pressure to decarbonize, internationalize, keep up with digitalization, and secure the right talent. In addition, many of these supports are on the verge of expiring.

Indeed, a Canadian study showed that the most effective way to support SMEs is by pairing financial support with advisory services. 5 Measuring BDC’s impact on its clients , Business Development Bank of Canada (BDC), July 2013. One way to provide this dual support is through National Champion Programmes. Such programs typically work to identify SMEs with high growth potential and provide them with the one-on-one support they need to realize this potential over a defined period of time. Support could include building capabilities (such as digital, marketing, and leadership skills), providing advice from experts on how to navigate the market, guiding transformation efforts, and arranging introductions and networking opportunities.

A handful of existing programs and research from countries around the world—Canada, France, Malaysia, Singapore, the United Kingdom, and the United States—reveal several best practices for governments looking to support SMEs through the challenges they face. Specifically, these programs suggest that governments can help set up SMEs to thrive well into the future by focusing on midsize companies, employing a rigorous selection process, targeting specific groups and tailoring solutions to their needs, providing incentives for commitment, and partnering with the private sector.

Challenges and opportunities for SMEs today

The imperatives facing SMEs a few years ago have become more pronounced as the world shifts to the next normal, presenting both challenges and opportunities.

Keeping up with digitalization

Most of the world is working to digitalize, a trend that has accelerated over the course of the pandemic, and SMEs are at risk of being left behind.

A July 2020 survey of executives reveals a rapid shift toward interacting with customers through digital channels, with adoption rates years ahead of where they were in previous surveys. The shift is particularly pronounced in Asia–Pacific, where the share of digital consumer interactions has advanced by four years , higher than the global average.

The shift to digital persists across countries and categories, as consumers in most parts of the world are engaging less with retailers outside the home. The online customer base across countries for food and household products, for instance, has grown by more than 30 percent , on average, since before the pandemic.

While such growth certainly comes with benefits, these benefits have disproportionately accrued to larger businesses. The top decile of companies by size in digital channels capture 60 to 95 percent of digital revenues . And small firms remain less digitalized than medium-size firms—and medium-size firms less than large firms. 6 “Digital tools and practices: SME access and uptake,” in The digital transformation of SMEs , OECD, February 2021. Behind this reality is the fact that digital solutions are often designed for large enterprises and are difficult to scale down for SMEs. In Singapore, for example, 56 percent of respondents to a survey reported that digitalization is too expensive for SMEs. 7 Hariz Baharudin, “Over half of SMEs in Singapore blame digitalisation delay on coronavirus,” Straits Times , October 21, 2020. The effects could be more significant for underrepresented segments; in the United Kingdom, for example, a report found that female-led SMEs are 20 percent more likely to opt out of digital solutions to improve productivity. 8 “Accelerating SME recovery to unlock £140bn boost to UK economy,” NatWest Group, March 30, 2021.

Internationalizing strategically

Several studies reveal that SMEs need to internationalize to grow, 9 Kulondwa Safari, “Contribution of internationalisation to SME growth: Evidence from the Kenyan manufacturing sector,” Economics and Business , December 2020, Volume 34, Number 1; Fury Khristianty Fitriyah, Sofik Handoyo, and Ivan Yudianto, “Critical success factors for the internationalisation of small–medium enterprises in Indonesia,” Cogent Business & Management , 2021, Volume 8, Number 1; Lucia Naldi, “Growth through internationalization: A knowledge perspective on SMEs,” Jönköping International Business School, 2008. but they often struggle to expand outside their home market or to do so strategically. Even prior to the COVID-19 pandemic, high-potential SMEs in many markets found success domestically, but their potential was capped by the size of their local market. Unlike large companies, many SMEs don’t have the resources to conduct extensive market research before expanding into new markets, instead following opportunities and growing only marginally.

In the European Union, nearly all of the 20 percent of small businesses with e-commerce sales sell within their own economy. Fewer than half of these businesses—representing only 8 percent of the overall market—sell in other EU countries. Only 4 percent sell outside of the European Union. A similar trend is true among medium-size firms. 10 “SMEs in the online platform economy,” in The digital transformation of SMEs , OECD, February 2021. In the United Kingdom, SMEs that have ambitious growth targets for the next five years have twice as much turnover from exports, with nearly 40 percent of their sales coming from online channels. 11 “Accelerating SME recovery,” March 30, 2021.

Uncertainties about overseas markets brought on by the pandemic have made internationalization more difficult. Indeed, in a survey in Singapore, 84 percent of SMEs stated that they had delayed their internationalization plans because of the pandemic and the challenges it has exacerbated. 12 “Over half of SMEs in Singapore,” October 21, 2020. Additionally, global supply chain issues have hit SMEs hard and have set back export growth. A June 2020 survey in the United States revealed that 45 percent of small businesses had experienced disruptions in supply chains. 13 Coronavirus (COVID-19): SME policy responses , OECD, July 15, 2020. And in many cases, leading firms have handed risks down the supply chain to vulnerable SMEs in developing countries, causing job losses and even bankruptcies. 14 COVID-19: The great lockdown and its impact on small businesses , International Trade Centre, 2020.

Delivering on decarbonization commitments

Many governments are ramping up efforts to decarbonize. In the United States, President Joe Biden announced a target for the country to achieve a 50 to 52 percent reduction from 2005 levels in economy-wide net greenhouse gas pollution by 2030. 15 “Fact sheet: President Biden sets 2030 greenhouse gas pollution reduction target aimed at creating good-paying union jobs and securing U.S. leadership on clean energy technologies,” The White House, April 22, 2021. The European Union aims to have net-zero greenhouse gas emissions by 2050. 16 “2050 long-term strategy,” European Commission, accessed December 2021. And at the 2021 UN Climate Change Conference (COP26), countries from around the world agreed on a resolution to cut emissions—albeit falling short of the efforts needed to limit the temperature increase to 1.5°C. 17 Libby Brooks, Damian Carrington, and Fiona Harvey, “Cop26 ends in climate agreement despite India watering down coal resolution,” Guardian , November 13, 2021.

However, according to a survey by YouGov for energy firm World Kinect Energy Services, 40 percent of SMEs in the United Kingdom haven’t made a sustainability plan—and 30 percent don’t intend to. 18 David Vetter, “30% of U.K. small firms have ‘no plans’ to become sustainable, survey finds,” Forbes , February 15, 2021. Indeed, SMEs are less well equipped than larger companies to decarbonize. The survey revealed that 29 percent of SMEs say the pandemic has thwarted sustainability efforts by forcing companies to focus on survival. Furthermore, SMEs may not have the resources to tackle such efforts. And while many decarbonization programs allow companies to realize cost savings relatively quickly, the up-front investments required can hinder SMEs from pursuing them. 19 Kealy Herman and Emily Wasley, “Net zero: Are SMEs the missing link in the chain?,” WSP, November 12, 2020.

Acquiring critical talent

Lack of the right talent and capabilities has thwarted the ability of SMEs to manage all of the challenges they face.

Lack of the right talent and capabilities has thwarted the ability of SMEs to manage all of the above challenges. Indeed, SMEs tend to struggle to acquire digital talent: 40 percent of respondents to a survey in Singapore stated they lack the digital skills to successfully adopt new technologies. 20 “Over half of SMEs in Singapore,” October 21, 2020. Also in Singapore, the struggle to expand internationally is attributed to three primary challenges: trouble attracting the right talent, limited financial resources, and unfamiliarity with the regulatory environment overseas. 21 “Expanding overseas still not an easy task for SMEs,” Enterprise Singapore, May 28, 2019. And a lack of in-house expertise can inhibit the decarbonization efforts of SMEs. SMEs also tend to have smaller R&D departments than larger firms and finance functions that focus more on accounting than strategy, potentially making it difficult to grow. 22 “Access to innovation assets,” in SME and entrepreneurship outlook 2019 , OECD, 2019.

The “Great Attrition” is likely to upend the ways all businesses think about talent. Between April and September 2021, more than 19 million US workers quit their jobs. And according to a recent McKinsey survey , 40 percent of respondents are at least somewhat likely to quit in the next few months. This trend could calcify talent challenges for SMEs—or present an opportunity to attract talent leaving other roles.

Five lessons for supporting SMEs through National Champion Programmes

National Champion Programmes go beyond financial interventions to provide nonfinancial support—such as advisory, transformation, capability-building, and networking opportunities—to help high-potential SMEs tackle challenges and achieve their goals. Such programs have proved to be an effective way for governments and other interested institutions to assist SMEs. Indeed, a program in Malaysia has helped facilitate an export increase of 4.9 billion ringgit (approximately $1.16 billion) across 275 companies. 23 Karyn Anne, “Springboard for mid-tier companies to grow exports,” Star , March 26, 2021. And the first participants in a program in Singapore expect to achieve 20 percent year-over-year growth over the next three years. 24 “Opening remarks by Minister Chan Chun Sing at the press conference for the sectoral company visit to AEM Singapore,” Ministry of Trade and Industry Singapore, September 14, 2020.

National Champion Programmes around the world reveal a handful of lessons about unlocking growth and innovation that could help these companies not only weather the current crisis but also overcome the compounding challenges they face.

Focusing on midsize companies can maximize impact

Existing programs have demonstrated that programs can achieve the most impact within the realm of SMEs by focusing on midsize companies. These companies have a disproportionate impact on economic outcomes. They also tend to have a demonstrated track record of success, including an ability and willingness to grow and a strong financial history, making them more likely to be able to implement advisory support.

Indeed, in Canada, midsize companies constitute 1.6 percent of all firms, yet they contribute 12 percent of GDP and 16 percent of employment—and they account for 11 percent of all exporters and 17 percent of export value. 25 High-impact firms: Accelerating Canadian competitiveness , BDC, May 2015. Midsize companies in Malaysia, which represent 2 percent of all firms, are critical economic players; they contribute about 40 percent of the country’s GDP and employ more than 16 percent of the workforce. 26 “Mid-tier companies development programme (MTCDP),” Malaysia External Trade Development Corporation, accessed December 2021.

The highest-performing companies, including midtier companies, contribute even more, achieving 20 percent year-over-year growth 27 “High-growth enterprises,” in Eurostat–OECD manual on business demography statistics , Eurostat and OECD, 2007. and accounting for 50 percent of new jobs and sales, particularly in the manufacturing and services sectors. 28 “High-growth firms: Facts, fiction, and policy options for emerging economies,” World Bank, November 16, 2018. By targeting these companies, then, National Champion Programmes stand to have an outsize impact on the country’s economy and workforce.

Personalized outreach can help identify and recruit the companies with the highest potential

Existing programs have demonstrated the importance of targeting companies with high potential through rigorous selection processes—including getting to know them one on one.

Companies with the highest potential tend to have the greatest chance of delivering the desired economic benefits, including increased revenues, exports, GDP, and employment. To ensure support goes to those with the highest potential, some governments have employed stringent selection processes that test for this potential, looking at quantitative data about the company and its history, as well as qualitative criteria such as the scale of ambition and the presence of growth mindsets.

For example, Scale-up SG, a 12- to 18-month program in Singapore, helps selected high-growth companies scale to become major employers and leaders in their field. The criteria for selection for this program include that the company have a track record of growth; leadership with strong ambitions and a clear growth strategy; high potential for economic spin-offs, such as creating job opportunities; and bandwidth to dedicate significant management time and resources to accelerate growth. 29 “Scale-up SG,” Enterprise Singapore, accessed March 3, 2021.

To attract these high-potential companies, existing programs have found that they need to be able to understand each SME’s unique needs and address them on a case-by-case basis. Rather than taking an automated or mass-outreach approach, program representatives reach out personally to companies, building relationships with them to ensure the program is a good fit, to understand their starting point, and to explain how the program will benefit them. Such tailored outreach is particularly relevant for ensuring inclusion of minority- and women-led businesses. 30 “Accelerating SME recovery,” March 30, 2021.

Targeting a specific group of companies and tailoring programs to their needs

While SMEs might be similar in scale, they span nearly all sectors and vary in capabilities, challenges, and objectives—therefore requiring varying kinds of support. However, SMEs are not always well equipped to identify the type of support they need. A report from the United Kingdom found that SMEs use about 20 different sources to find the right program, and 72 percent of them research for at least 30 hours a week for three weeks before deciding to join. 31 “Accelerating SME recovery,” March 30, 2021. Existing programs reveal that the most effective programs tailor support to companies’ specific needs by doing two things:

First, they limit their scope by targeting specific groups of SMEs that have shared objectives. These objectives often relate to the challenges SMEs are currently facing, including internationalization and digitalization. For instance, Malaysia’s Mid-Tier Companies Development Programme (MTCDP) focuses on midsize companies in the manufacturing and service industries aiming to grow exports of goods and services. 32 “MTCDP application criteria,” Mid-Tier Companies Development Programme, accessed December 2021. The Industry 4.0 Human Capital Initiative (IHCI) program in Singapore targets manufacturing companies that are looking to digitalize their operations and thus focuses on relevant Industry 4.0 applications. 33 “What is IHCI,” Industry 4.0 Human Capital Initiative, accessed December 2021.

Second, they recognize that not all companies—even those within a specific group—have the same needs. Thus, they employ a range of interventions for these companies to choose from, and they support them in navigating the options to create a program that best fits their needs.

MTCDP, for example, begins with a three-month diagnostic phase to identify companies’ most acute needs and relevant interventions. This process comprises a survey that helps reveal export challenges that SMEs are facing, interviews with top management, and a diagnostic clinic during which interventions are ultimately chosen. 34 “Program phases and timeline,” Mid-Tier Companies Development Programme, accessed December 2021. Scale-up SG likewise begins with a “strategize” phase; over four months, companies work to align on growth priorities and develop and commit to a road map for growth and targets. 35 “Scale-up SG programme structure for inaugural run,” Scale-up SG, July 2019.

In Canada, the Growth Driver Program run by the government-owned Business Development Bank of Canada (BDC) provides selected companies across all sectors with formal management training, peer-to-peer networking, and other tailored nonfinancial services. A small team of highly experienced advisers works with firms to assess their needs and identify solutions to their challenges, including planning a multiyear growth outlook and preparing a management plan—as well as providing targeted support for CEOs and leadership teams. 36 High-impact firms , May 2015.

Pursuing SMEs that are highly committed to making a change

SMEs have diverse needs, and governments have the power to provide support for them.

National Champion Programmes typically involve a blend of strategic advisory, delivery, and capability-building support. Translating this support into results requires a high level of commitment from SMEs. Programs can use a number of tactics to encourage companies to commit not just to completing the program but to implementing what they learn and making new strategic moves.

For instance, Scale-up SG requires that SMEs pay 20 to 30 percent of program costs. 37 “Scale-up SG fact sheet,” Ministry of Trade and Industry Singapore, March 1, 2019. MTCDP in Malaysia similarly requires participants to cover certain costs, such as travel expenses; the program also expects CEOs and senior management to commit to the program for about one day per month over the course of nine months. 38 “MTCDP application criteria,” accessed December 2021.

Tapping the private sector for expertise and access

SMEs have diverse needs, and the government has the power to convene the different players in an economy to provide this support. Private-sector companies, for instance, can not only lend their expertise to SMEs by acting as advisers; they can also potentially provide them with access to larger clients and investors and help them build capacity. 39 “Joining forces to leave no one behind,” in Development co-operation report 2018 , OECD, December 11, 2018. Ultimately, these partnerships can put SMEs in a better position to tackle the many challenges they face and to continue to grow.

Detroit Means Business (DMB) in the United States provides an example of such a partnership. DMB is a coalition of more than 60 public, private, and philanthropic organizations; Detroit-based business-support organizations; and civic-minded small-business entrepreneurs. Participants include the City of Detroit, many private-sector institutions, Invest Detroit, and Detroit Economic Growth Corporation. 40 “Team,” Detroit Means Business (DMB), accessed December 2021. These groups came together early in the COVID-19 pandemic with the goal of helping SMEs survive by giving them access to support, such as financial resources, webinars on time-sensitive topics, and information about personal protective equipment (PPE) and reopening guidelines. As the COVID-19 pandemic has persisted, the coalition has evolved its initiatives, deepening digital capabilities, driving local procurement, and helping individual small businesses grow.

SMEs are crucial actors in economies and societies worldwide. These businesses make outsize contributions to GDP, exports, employment, and livelihoods in developed and developing countries alike, but they’re facing increasing threats that could undermine their growth and ability to contribute meaningfully. Learning from existing National Champion Programmes, governments across the globe have an opportunity to help SMEs continue to thrive—through the pandemic and well into the future.

Diaan-Yi Lin is a senior partner in McKinsey’s Singapore office, where Rebecca Yeoh is a partner; Sruthi Namratha Rayavarapu is a consultant in the Bangalore office; and Karim Tadjeddine is a senior partner in the Paris office.

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How does a pandemic disrupt the benefits of ecommerce a case study of small and medium enterprises in the us.

1. Introduction

2. literature review, 2.1. the contributions of ecommerce to smes, 2.2. operational, 2.2.1. business efficiencies, 2.2.2. technology, 2.2.3. supply chain, 2.3. sales and marketing, 2.3.1. marketing strategies, 2.3.2. globalization and new market entry, 2.3.3. customer service, 2.4. financial, 2.4.1. revenue growth and cost reduction, 2.4.2. improved working capital position, 2.4.3. financial management and asset monitoring, 2.5. the cons of ecommerce and global disruptions, 3. methodology, 3.1. reliability and validity, 3.2. sampling, 3.3. data sources, primary and secondary data, 3.4. case study protocol, 3.5. the case study, 3.5.1. selecting the case study smes.

• Has 70 employees or fewer
• Uses eCommerce platform for one or more functions
• Employs different parties to handle various functions in the organization

3.5.2. Data Collection Procedures

3.5.3. protocol questions, 3.5.4. data processing and analysis, 3.5.5. scoring, 4.1. operational, 4.1.1. processes, 4.1.2. technology, 4.1.3. supply chain.

“Quite a substantial amount of change there, we were incurring a lot more delays, again, from importers, and stuff like that, and port congestion. That is still a residual effect that is happening today. And it’s even gotten worse since probably June, July of last year. So, we have, we’re seeing more delays. I think when it first happened, we were seeing about a two-week delay, but now we have gotten to maybe a month-long delay of products coming in. So, we’ve had to really restructure the way we think about our production planning, and our launches as well for eCommerce products, and figure out the best way and best suitable times that we can feel confident in alerting our customers, whether it’s like, delaying a video production for YouTube or, you know, sending out some—trying to pull other products that we’ve launched before and try to get that back out there just as a substitute.”

4.2. Sales and Marketing

4.2.1. marketing strategies, 4.2.2. globalization and new market entry, 4.2.3. customer service.

“I feel like we’ve gotten more questions, more requests. I don’t know if that’s a symptom of people at home having more time to think about these things, but definitely more communication with customers during a pandemic.”

“And one thing that we do that no one else does is call the customer the next day after they’ve placed the order and thank them for their business. And then also [we ask] if they have any questions that we can answer right then, so that there’s clarity of when it will ship out.”

4.3. Financial

4.3.1. revenue growth and cost reduction.

“…we’ve reduced the digital ads because of how solid our true organic growth traffic is coming through Google. Right. And that is offset. It is the expenses that we were spending on pre-digital ads on Facebook. Oh, okay. So, it was a net savings of $ 8000. That went straight to the bottom line.”

“We’re still up a million dollars over the prior year. Oh, there you go. So yes, there is a time and place for digital marketing. What we’re seeing is, is with us being placed one or two position on Google that far outweighs any kind of advertising that you’d really need to do and still, you know, you can’t grow at 120% year over year over year because you can’t keep up with a giant like that. Correct. I’m finding even at 60 to 70%, I’m getting worn out now seven years in a row. Seeing that kind of growth.”

4.3.2. Improved Working Capital Position

4.3.3. financial management and asset monitoring, 5. discussion, 5.1. theoretical implications, 5.2. managerial implications, 5.3. limitations and recommendations for future research, author contributions, institutional review board statement, informed consent statement, data availability statement, acknowledgments, conflicts of interest.

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Share and Cite

Bravo, R.; Gonzalez Segura, M.; Temowo, O.; Samaddar, S. How Does a Pandemic Disrupt the Benefits of eCommerce? A Case Study of Small and Medium Enterprises in the US. J. Theor. Appl. Electron. Commer. Res. 2022 , 17 , 522-557. https://doi.org/10.3390/jtaer17020028

Bravo R, Gonzalez Segura M, Temowo O, Samaddar S. How Does a Pandemic Disrupt the Benefits of eCommerce? A Case Study of Small and Medium Enterprises in the US. Journal of Theoretical and Applied Electronic Commerce Research . 2022; 17(2):522-557. https://doi.org/10.3390/jtaer17020028

Bravo, Raziel, Mario Gonzalez Segura, Olawale Temowo, and Subhashish Samaddar. 2022. "How Does a Pandemic Disrupt the Benefits of eCommerce? A Case Study of Small and Medium Enterprises in the US" Journal of Theoretical and Applied Electronic Commerce Research 17, no. 2: 522-557. https://doi.org/10.3390/jtaer17020028

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A Systems View Across Time and Space

• Open access
• Published: 27 May 2021

Innovation practices for survival of small and medium enterprises (SMEs) in the COVID-19 times: the role of external support

• Nawal Abdalla Adam   ORCID: orcid.org/0000-0002-4798-6220 1 &
• Ghadah Alarifi 1  

Journal of Innovation and Entrepreneurship volume  10 , Article number:  15 ( 2021 ) Cite this article

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Global epidemic crises, such as the coronavirus (COVID-19), usually expose small and medium enterprises (SMEs) to various kinds of challenges and may put their lives at risk. This study aims to develop a theoretical model to provide insights about the association between innovation practices and the SMEs’ performance and survival while underlining the auxiliary role of external support in such a relationship. Online questionnaire has been used to collect the data from 259 randomly selected SME managers in Saudi Arabia, and the data was analyzed using the SmartPLS3 software. The structural equation modeling results showed that the innovation practices adopted by SMEs to face the repercussions of COVID-19 had a positive impact on the performance and likelihood of business survival. PLS-SEM bootstrap results indicated that external support aids strengthen the positive impact of SMEs’ innovation practices on business survival rather than its performance. The study has several significant practical implications for SME managers, governments, and policy makers that have been stated.

Introduction

Since its emergence in late 2019, the COVID-19 epidemic has caused negative effects on the economies of countries and has had a disastrous impact on human health. The conditions and restrictions imposed in most countries to limit the virus’s spread among people, such as social distancing and quarantines, have led to distortions in the system of supply and demand for goods and slowed many countries’ economies. The repercussions of the COVID-19 pandemic have been felt across all economic sectors and institutions, including small and medium enterprises (SMEs) (Hasanat et al., 2020 ).

Studies have shown that SMEs are confronted with various difficulties and challenges due to the COVID-19 pandemic. The period of closure and movement prevention policies adopted by governments in many countries have greatly affected SMEs, paralyzing their operations, weakening their financial positions, and exposing them to financial risk (Omar et al., 2020 ; Oyewale et al., 2020 ). SMEs have suffered from a shortage of workers and production inputs because of distortions that marred supply chains, which negatively affected their sales (Gurría, 2020 ; Segal & Gerstel, 2020 ) and their ability to fulfill their financial obligations and pay employees’ salaries (Robinson & Kengatharan, 2020 ). This problem has coincided with a decrease in consumer spending because of the reduction in consumers’ income and widespread feelings of uncertainty (Gurría, 2020 ). As a result, many SMEs found themselves incapable of dealing with the situation (Ozili, 2020 ). Some businesses have stopped their activities and remained closed since the first months of the outbreak (Bartik et al., 2020 ).

Published research has indicated that SMEs have failed to withstand the consequences of economic crises (Latham, 2009 ; Michael & Robbins, 1998 ). This defect can be attributed to a lack of financial resources and the high cost of business capital (Domac & Ferri, 1999 ) as well as limited administrative and technical capacities (Demirgüç-Kunt et al., 2005 ). Researchers have emphasized that SMEs are often the enterprises most affected by economic crises (Latham, 2009 ; Robbins & Pearce II, 1993 ). Therefore, a socioeconomic crisis related to people’s health such as the COVID-19 pandemic can be expected to have dire effects on SMEs because these businesses require strong connections with people, whether they are customers or suppliers (Nugent & Yhee, 2002 ).

To protect this vital sector from collapse due to the COVID-19 crisis, many governmental and nongovernmental organizations (NGOs) have provided various forms of support to SMEs. Governments have adopted several policies that will mitigate the negative effects of this crisis (Ahmad et al., 2020 ). SMEs have received some financial support from local and international NGOs and financial institutions during the COVID-19 crisis (Song et al., 2020 ). Additionally, SME owners have adopted a number of practices and strategies to confront the ramifications of the crisis (Thorgren & Williams, 2020 ). During the early outbreak of the pandemic, authors expected that SMEs’ responses and practices would focus on financial spending reductions (Thorgren & Williams, 2020 ), digital technology exploitation (Guo et al., 2020 ; Indriastuti & Fuad, 2020 ; Papadopoulos et al., 2020 ), and disaster management (Eggers, 2020 ).

Previous studies on SMEs’ practices in response to the COVID-19 pandemic and business performance have examined the impact of each practice on business performance separately (Gerald et al., 2020 ; Guo et al., 2020 ; Indriastuti & Fuad, 2020 ; Sobaih et al., 2021 ). For example, Guo et al. ( 2020 ) found that the use of digital technology helps SMEs to survive and cope with the consequences of the pandemic. Their findings call attention to the importance of information technology in helping SMEs cope with the challenges created by the COVID-19 crisis. Similarly, Gerald et al. ( 2020 ) argued that practicing strategic agility mitigates the negative effects of the COVID-19 crisis on SMEs’ performance. These findings take a managerial approach to SMEs’ practices for responding to the crisis.

However, a limited number of studies have focused on SMEs’ practices for survival after the outbreak of the COVID-19 pandemic (Omar et al., 2020 ). Omar et al. ( 2020 ) showed that SMEs have used financial and marketing strategies for survival when faced with the repercussions of the COVID-19 crisis. Their findings are significant because they focused on SMEs’ long-term, rather than short-term, performance. However, the impact of these strategic responses on SMEs’ long-term performance and their potential for efficiency needs further study.

Moreover, studies have been deficient in addressing the impact of external support received by SMEs since the COVID-19 outbreak on their performance and survival (with the exception of Song et al., 2020 ). As such, this study examined the effectiveness of SMEs’ innovation practices in response to the challenges posed by the COVID-19 pandemic. More specifically, the present research focused on the impact of SMEs’ innovation practices on business performance and survival. The current research also examined the moderating effect of external support in the relationship between SMEs’ innovation practices and business performance and survival. Focusing on the marketing and organizational innovation practices adopted by SMEs in Saudi Arabia to face the threats created by the COVID-19 pandemic, the present study is based mainly on the hypothesis that SMEs’ innovation practices in times of crisis, such as the COVID-19 pandemic, may help increase the organization’s performance and, subsequently, ensure its survival.

This study contributes to the growing literature on SMEs’ practices and external support in times of crisis and provides additional insights for SME managers and policymakers about the importance of external support in strengthening the positive impact of innovation practices on business survival.

After reviewing the literature on SMEs’ innovation practices, performance, survival, and external support, we will introduce our theoretical framework and analysis of the five hypotheses being tested. We then present and discuss the results of our data analysis to highlight our main conclusions.

Literature review

Innovation practices and sme performance.

Innovation has become a necessity for all contemporary enterprises that want to survive in a world characterized by competition, technological change, and recurring crises. The concept of innovation refers to the use of new technology or new management practices in an organization to achieve a targeted improvement in its operations (Tornatzky et al., 1990 ). From a SME perspective, innovation commonly indicates new products or processes that address customer needs more competitively and profitably than existing ones (O’Regan & Ghobadian, 2006 ; Zahra et al., 1999 ). We use the term “innovative practices” in this study to refer to the effective implementation of new solutions to challenges faced by SMEs, which include effective implementation of new ideas in relation to the organization’s product, services, or processes; new marketing mechanisms; or new administrative practices for work amelioration and upgraded performance (Damanpour, 1992 ; Johannessen et al., 2001 ; OECD/Eurostat, 2005 ).

The key driver of innovation practices in enterprises is the ambition to get reimbursement in the form of better performance. Therefore, innovation is defined as creation of some modifications in the enterprise’s practices that are intended to obtain an improvement in performance (Curristine, 2006 ). Based on the literature, performance in this study is defined as achieving the institution’s objectives related to sales, profitability, competition, market share, and any other strategic goals (Hult et al., 2004 ). Researchers also defined performance as achieving a set of desired outcomes resulting from the realization of the marketing objectives (Chittithaworn et al., 2011 ). For Yıldız et al. ( 2014 ), performance refers to an effectiveness in carrying out the enterprise’s tasks, which results in achieving its stated objectives. Achieving high performance level implicitly indicates enterprise success (Mahmudova & Kovács, 2018 ). Measuring the enterprise’s performance helps to enhance the positive aspects of its operation and provides an opportunity to take corrective measures to address weaknesses (Mahmudova & Kovács, 2018 ).

There is a large amount of literature supporting the significant positive relationship between innovation and SME performance (Qian & Li, 2003 ; Rosenbusch et al., 2011 ; Verhees & Meulenberg, 2004 ; Yıldız et al., 2014 ). The published research also indicated the positive impact of innovation capabilities on SME performance (O’Cass & Sok, 2014 ; Oura et al., 2016 ; Zhang, et al., 2018 ). Zulu-Chisanga et al. ( 2016 ) noted that the efforts exerted to develop different innovations are the primary reason for the improvement in SMEs’ financial indicators. Previous studies also indicated the positive correlation between the innovation capabilities and SMEs’ performance (O’Cass & Sok, 2014 ; Oura et al., 2016 ; Zhang et al., 2018 ). Freeman ( 2004 ) added that distinct SMEs’ performance is an outcome of the effective implementation of innovations. However, Lin and Chen ( 2007 ) argued that the impact of managers’ innovation practices on SME income outweighs that of technological innovation. Therefore, we argue that the innovation practices of SMEs in all environmental situations such as the COVID-19 pandemic can contribute positively to enterprise performance. Therefore, we hypothesize the following:

H1: SME’s innovation practices have a significant positive impact on its performance.

Innovation practices and SME survival

Enterprise survival was used in the current study to indicate the amount of time the enterprise takes to carry out its activities since its inception up to closure (Bercovitz & Mitchell, 2007 ). There are many parties in the community who benefit from the enterprise’s survival aside from its managers. They include workers, consumers, and suppliers (Bercovitz & Mitchell, 2007 ). Researchers confirm that enterprise survival is one feature of its performance (Danes et al., 2008 ; Kalleberg & Leicht, 1986 ). An enterprise can survive if it can adapt to the conditions and its surrounding environment (Child, 1972 ; Pfeffer & Salancik, 1978 ). Compared to large enterprises, SMEs have shorter life, more profitable, and largely affected by external environmental factors (Carroll & Huo, 1986 ). Some researchers consider survival to be an objective measure of enterprise success (Miner, 1997 ).

In times of crisis, the existences of SMEs are in danger (O’Reilly III & Tushman, 2011 ). Crises weaken SMEs’ growth and threaten their projects because their negative impact extends to all elements of the external enterprise environment (Dhochak & Sharma, 2015 ). For instance, in time of crisis, SMEs have limited financing opportunities due to weak capital market performance, lack of sufficient information, and component defects throughout the economy (Bester & Hellwig, 1989 ; Binks et al., 1992 ; Cowling et al., 2012 ; Hillier & Ibrahimo, 1993 ; Mason & Harrison, 2015 ).

The business innovations–survival relationship has been illustrated in numerous studies. Innovation is critical to the continuity of any enterprise (Ortiz-Villajos, 2014 ). According to Gaynor ( 2002 ), innovation is the core factor behind the survival and continuity of enterprises; it supports the company’s expansion and growth and enhances the enterprise’s future success. Previous studies suggested using innovations to overcome the obstacles and challenges of industrial SMEs’ success and survival (Bruns & Stalker, 1961 ; Hurley & Hult, 1998 ; Porter, 1990 ; Schumpeter & Redvers, 1934 ). Schumpeter ( 1942 ) declared that the enterprise’s survival is strongly linked to its innovation practices. Several studies have attempted to explain this link by pointing to some concepts relevant to both innovation and enterprise survival. For instance, a competitive advantage is simultaneously a product of enterprise innovation practices and a fundamental pillar of its survival (Brüderl et al., 1992 ; Cefis & Marsili, 2003 ; Helmers & Rogers, 2010 ). Schumpeter ( 1942 ) argued that enterprises cannot survive and continue their activities without being innovative. However, survival also results from achieving victory in the face of crises imposed by the external environment (Aldrich, 1979 ; Hannan & Freeman, 1977 ; Kanter & Brinkerhoff, 1981 ). Therefore, this study argues that the various innovation efforts exerted by SMEs for mitigating the negative effects of the COVID-19 pandemic can bring positive results to these enterprises. Therefore, the second hypothesis of this research is stated as such:

H2: SME’s innovation practices have a significant positive impact on its performance.

SMEs and external support

External support refers to the assistance provided to the enterprise by external parties (Global, I, 2018 ). SMEs are increasingly using external support (Bennett & Robson, 1999 , 2003 ) because it provides them with the essential knowledge and information necessary to strengthen their competitive position and increase their chances for future prosperity (Bennett & Robson, 1999 ; Penrose, 1959a , 1959b ; Teece, 2002 ; Teece et al., 1997 ). Governments, advocates, and different agencies and institutions offer external support to SMEs to save their lives, boost their growth, stimulate innovation, and enhance their capabilities by increasing managerial capabilities and improving marketing skills, thereby ensuring they make a greater business contribution to the national economy (Chrisman & McMullan, 2004 ; Mason & Brown, 2013 ). Governments, on the other side, encourage SMEs to take external support to be better able to exploit their business capacity, improve their performance, increase their competitiveness, and assist in business expansion and growth (Cliff, 1998 ; Gimeno et al., 1997 ; Storey et al., 2010 ).

SMEs’ external support can be either direct or indirect. Direct external support usually takes the form of financial aid that is to be used in the acquisition of assets, the purchase of technology, or the implementation of development plans with the aim of solving funding deficiency problems. It is usually provided according to specific government policies or financial intermediary conditions (Freitas & Von Tunzelmann, 2008 ; Nishimura & Okamuro, 2011 ). Indirect external support usually takes the form of consultancies, ideas, and advice provided by experts, advisory offices, and educational institutions to help eliminate the lack of knowledge and increase the available amount of information (Freitas & Von Tunzelmann, 2008 ; Metcalfe & Ramlogan, 2005 ). Despite the diversity and the importance of external support for SMEs, researchers have noticed that SMEs benefit little from this support due to the lack of information and awareness about this form of support and the enterprise management’s inability to choose the appropriate type of support (Story, 1994 ).

External support is important for SMEs because it provides them with the knowledge needed to develop and implement innovations. According to Based  Woodman et al. ( 1993 ) innovations are usually grounded on the business informational support received from the enterprise surrounding environment. Cohen and Levinthal ( 1990 ) showed that innovations in enterprises result from combining the knowledge received from their external environment with their available internal knowledge. Damanpour ( 1991 ) confirmed a positive association between external support received by an enterprise and innovation. External support also provides an enterprise with human and financial resources that undergird innovation within the enterprise (Amabile, 1996 ; Scott & Bruce, 1994 ).

Numerous researchers have examined the linkage between external support and enterprise performance. For instance, Kent ( 1994 ) noted that the use of external support raises the SME’s financial indicators. Larsson et al. ( 2003 ) concluded that external support in the form of managerial consultancies and advice received by SMEs positively affect the business growth. Brush and Vanderwerf ( 1992 ) and Storey ( 2002 ) demonstrated that external consultants positively affected an SME’s performance, expansion, and viability. Research findings noted that the use of external support contributes positively to a business’s competitive advantage (Penrose, 1959a , 1959b ; Teece et al., 1997 ). Dollinger ( 1985 ) emphasized the positive results of interaction with the external environment components on the SME’s performance. Many other scholars have emphasized the positive association between an enterprise’s performance and its use of external support (Bylund & McCaffrey, 2017 ; Matlay et al., 2005 ).

However, researchers asserted that the link between innovation practices and enterprise performance requiring an auxiliary factor represent a moderating variable (Covin & Slevin, 1989 ; Jones & de Zubielqui, 2017 ; Li & Atuahene-Gima, 2001 ). According to Rosenbusch et al. ( 2011 ), this moderator is expected to come from the enterprise’s external environment.

Studies have proven the strong and positive link between an enterprise’s performance and its likelihood of its survival (Friedlander & Pickle, 1968 ; Gibson et al., 1973 ; Steers, 1975 ; Thompson & McEwen, 1958 ). For example, Wiklund and Shepherd ( 2011 ) asserted that an enterprise survival requires a minimum level performance. In addition, published literature shows that an enterprise’s survival indicates its outstanding performance over a long period (Friedlander & Pickle, 1968 ; Gibson et al., 1973 ; Steers, 1975 ; Thompson & McEwen, 1958 ). Moreover, both an enterprise’s performance and survival are affected by external environmental factors and crises such as the COVID-19 pandemic (Holmes et al., 2010 ). This study argued that external support received by SMEs for the purpose of mitigating the effects of the COVID-19 pandemic contributes to strengthening the relationship between both innovation practices and an enterprise’s performance on the one hand and between innovation practices and the business survival on the other hand. Thus, we hypothesize the following:

H3: The positive association between an SME’s innovation practices and its performance may be stronger when the enterprise receives more external support. H4: The positive association between an SME’s innovation practices and its survival may be stronger when the enterprise receives more external support.

Theoretical framework

The conceptual framework in Fig. 1 shows the links between a SME’s innovation practices, the business’s performance, and survival. The model suggests that both relationships (innovation practices–performance and innovation practices–survival) are affected by external support. In addition, SME performance affected the business’s survival. Innovative practices (independent variable) shown in the model included six dimensions (external knowledge, structures, leadership, regenerations, employees’ activities, and marketing activities) extracted from the literature review. The dependent variables were the SME performance and SME survival. The model proposes that the connection between dependent variables and the independent variable is moderated by the external support.

The conceptual research model

First, the direct relationship between innovation practices and the SMEs’ performance is analyzed (H1). Then, the direct association between SME innovation practices and business survival is considered (H2). An analysis of the effect of external support on the strength of the relationship between SMEs’ innovation practices and their business performance is performed (H3). Finally, the role of external support in the link between innovation practice constitutions and SME survival is scrutinized (H4).

In the next section, the hypothetical relationships of the independent variable and dependent variables in the model are discussed.

Data collection and sample

The current study is limited to SMEs in Saudi Arabia that employ a number of employees, ranging between six and 250, with revenue less than 200 million Saudi Riyals. The online questionnaire prepared through SurveyMonkey was used to collect the data from SME managers. The online questionnaire is less expensive and helps obtain large responses in a short period of time (Bryman & Bell, 2014 ). The questionnaire was first translated from the English language into the Arabic language so the respondents could understand the questions. Then, an e-mail containing a link to the questionnaire was sent to a randomly selected sample frame, which contained a request to fill out the questionnaire and an explanation of its purpose. The participants were given 15 days to complete the questionnaire.

The online survey distributed during the last 2 weeks of August 2020 included 500 randomly selected SME managers (selected from the General Authority for Statistics [GaStat] database). At the end of the survey period, 259 participants completed the questionnaire, resulting in a response rate of 52%. The total number of questionnaires was sufficient to represent the SMEs in Saudi Arabia, and they were analyzed using PLS-SEM (Sekaran & Bougie, 2003 ). A majority of the respondent SME managers were males (68%), with a bachelor’s degree (55.2%), and age 26–30 years (22.4%). The SMEs included in the sample were 75% small and of age groups 1–3 years (21.2%), 4–7 years (23%), and more than 12 years old (29%).

Measurements

Measures of the constructs of the proposed research model were derived from the literature and modified to suit the nature of this study. To ensure that these measures are valid for these constructs, two of our colleagues reviewed the questionnaire wording. Then, an initial survey was piloted to 15 SME managers in Riyadh. Based on their comments and feedback, some of the questionnaire questions were edited and revised.

The survey constructs were measured using multiple items. All of the questionnaire questions were related to SME business activities and situations since the outbreak of COVID-19 in Saudi Arabia (March 2020). The questionnaire survey was used to examine the impact of SMEs’ innovative responses to the COVID-19 pandemic and external support received during COVID-19 on SMEs’ business performance and survival. The questionnaire consisted of five sections. The first section addressed the personal profile of the enterprise manager and the enterprise characteristics. The second section focused on the innovation practices that have been adopted in the enterprise since the emergence of COVID-19. The third section dealt with enterprise performance after the outbreak of the epidemic. The fourth section addressed project survival indicators, and the fifth section focused on the usage of external support packages provided by the government and NGOs.

Dependent variables

Our dependent variables are SME performance and business survival. SME performance was measured using a subjective scale adapted from Bouchikhi ( 1993 ), Miller et al. ( 1988 ) and O’Farrell ( 1986 ). The components of the scale include items related to enterprise sales, profit, assets, capital, production, and market share. These items were measured using a five-point Likert scale (1–largely decreased, 2–decreased, 3–no change, 4–increased, and 5–largely increased).

Business survival was measured using two set indicators (financial indicator and strategy) derived from Barbosa ( 2016 ). The financial indicator included five items used to measure an enterprise’s cash availability, debt magnitude, reserved cash, accounts receivable turnover, and technology usage. The strategy indicator comprised five items used to measure the nature of the enterprise’s products, market geographical area, and market segment, ability to estimate sales, and risk tolerance. All of the items were measured using a five-point Likert scale (ranging from 5–strongly agree to 1–strongly disagree).

Independent variables

Innovation practices are presented as the main independent variable in the research model. It comprises five sub-constructs adapted from Crossan and Apaydin ( 2010 ). Innovation practices usually pertain to new actions and innovation that encourage enterprise internal environmental features (Aragón-Correa et al., 2007 ). The measures of enterprise innovation practices were made up of several indicators related to enterprise internal settings that operated individually or simultaneously. The five indicators of SME innovation practices embrace “external knowledge,” “structure,” “leadership,” “regeneration,” and “employee’s activities.” All of the items were measured using a five-point Likert-scale (ranging from 5–strongly agree to 1–strongly disagree).

External knowledge is indicated by knowledge and information obtained as a result of existing within social business-related networks in addition to other types of knowledge required to develop enterprise innovation capabilities (Crossan & Apaydin, 2010 ). External knowledge (six items) was derived from a scale developed by Martensen et al. ( 2007 ), Saunila et al. ( 2014 ), and Smith et al. ( 2008 ).

The structures are related to the required system, work organization, and task arrangement to ensure the success of innovation implementation (Martínez-Román et al., 2011 ; Smith et al., 2008 ). The structure construct is divided into sub-constructs in relation to business expenses and production. The six items for expenses and the six items for production sub-constructs were developed from Adams et al. ( 2006 ).

The leadership construct was concerned with the support and the encouragement that an enterprise managerial leadership devotes to innovation (Saunila et al., 2014 ; Smith et al., 2008 ). The leadership (seven items) scale was modified from Adams et al. ( 2006 ).

Regeneration concerns the extent to which the enterprise is able to learn lessons from the past and benefit from previous experiences in developing current innovations (Saunila et al., 2014 ; Smith et al., 2008 ). The regeneration (five items) scale was derived from Crossan and Apaydin ( 2010 ).

The employees’ activity construct indicates the innovation capabilities of the employees and their enthusiasm and motivation to come up with successful, innovative ideas in different enterprise-related fields (Saunila et al., 2014 ; Smith et al., 2008 ). The employees’ activity (five items) scale was derived from Crossan and Apaydin ( 2010 ).

Moderating variable

External support was inserted into the theoretical model as a moderator in the relationship between innovation practices and SMEs’ performance and innovation practices and business survival. The hypothetical task of external support in this case is to assist the innovative efforts of SMEs, exerted since the COVID-19 pandemic crisis, to reflect positively on its performance and survival. External support was measured through a seven-item scale obtained from official websites of government agencies and NGO websites. These measures concern the types of support that are provided to SMEs during the crisis period. All items were measured using a five-point Likert-scale (ranging from 5–strongly agree to 1–strongly disagree).

Data analysis and results

Data analysis.

The research hypotheses were tested through the partial least squares structural equation modeling (PLS-SEM) using the SmartPLS 3.2.9 software (Ringle et al., 2005 ). PLS-SEM is efficient in measuring the strength of structural and complex relationships between model constructs, determining the interaction effect of moderating variables and examining the theoretical soundness of relationships between variables (Chin et al., 2003 ). Initially, SmartPLS was used to estimate the measurement model-for-model constructs, and then, it was exploited to test hypothetical connections between the latent variables shown in the structural model (Hair Jr et al., 2016 ).

Measurement model

The measurement model was tested for reflective and latent variables to ensure the validity of the model’s constructs. Construct validity was evaluated using factor loadings, composite reliability (CR), average variance extracted (AVE), and discriminant validity (Hair Jr & Lukas, 2014 ). Items of indicators’ loadings, and constructs CR, and AVE are shown in Table 1 . Most items exhibited a loading greater than 0.60 (Bagozzi & Yi, 1988 ) except for item structure (expenses) item STREX5, external support items EXS1 and EXS2, and survival construct item SurvStr1. Eight items (EK1, EK2, EK4, REGEN1, STREX4, STREX5, STREX6, SurFin6) from different constructs with loadings less than 0.50 were deleted to improve construct reliability. Results in the table indicates CR values exceed the criterion (070) as suggested by Hair Jr et al. ( 2014 ), ranging between 0.932 and 0.793. Regarding the AVE, results showed that all constructs scored values above the threshold of 0.50 (Hair Jr et al., 2014 ). The discriminant validity is confirmed since values depicted in Table 2 indicate that the square of the variable correlations with other factors are less than the square root of its AVE (Fornell & Larcker, 1981 ).

Structural model

Following examining the measurement model,  the next step is to examine the hypothetical relationships between the structural model latent variables using PLS-SEM, structural model’s path coefficients of determination ( R 2 ), and model goodness of fit (GoF) (Memon & Rahman, 2014 ). Then, the interaction effect was determined as a part of moderation analysis. Prior to the structural model analysis, the collinearity between constructs was reviewed using variance inflation factors (VIF). Table 3 illustrated that all independent variables have VIF value less than benchmark 5 (Hair Jr et al., 2016 ).

Structural model examination results in Table  4 present the exogenous latent variable coefficient of determination ( R 2 ). R 2 indicates the degree to which exogenous latent variables explain the variation in the endogenous variables (Hair Jr et al., 2014 ). Falk and Miller ( 1992 ) suggested that the R 2 value for endogenous variables should not be lower than 0.10 while Chin ( 1998 ) classified R 2 values into substantial explanation (value =0.67), moderate explanation (value =0.33), and weak explanation (value=0.19). Accordingly, the endogenous variables business survival and business performance have achieved sufficient variance explained values whereas endogenous variable business performance has scored moderate explanation. Therefore, we can conclude that our proposed structural model has sufficient predictive power.

In addition, general goodness-of-fit (GoF) was estimated by calculating the square root of product of inner construct average R 2 and outer construct average AVE (Fornell & Larcker, 1981 ). Wetzels et al. ( 2009 ) suggested that fitness of structural model is considered sufficient if GoF ≥ 0.36. Value of GoF estimated for the research structural model is 0.59, showing that it had a satisfactory fit.

Hypotheses testing

Bootstrapping results.

PLS-SEM bootstrapping was used to evaluate the hypothesized relationship among research structural model constructs. The analysis results in Table 5 and Fig. 2 demonstrate path coefficients, significance levels, and t -value. Results indicate that hypothesis (H1) is confirmed, and SME innovation practices have significant positive influence on business performance (STD beta= 0.45, t =8.432, p =0.00). Similarly, hypothesis (H2), which is concerned with the strength of the link between SMEs innovation practices and business survival, is supported (STD beta= 0.054, t =3.782, p =0.00).

PLS-SEM model with moderating effect

Moderating effect

For analyzing the moderating effects, the variable “external support” was added to the original structural model as a proposed assistant for strengthening the relationship between the independent variable (innovation practices) and the dependent variables (business performance and business survival) (in Fig. 2 ). PLS-SEM bootstrapping was utilized to examine such moderation relationships. Hypothesis H3 denoted that “external support” has a moderating effect in the relationship between “innovation practices” and “business performance”. Statistical results in Table 6 demonstrates that the moderator variable “external support” has no significant effect in the relationship between “innovation practices” and “business performance”; wherefore, hypothesis H3 is rejected (beta= −0.081, t = 1.029, p >0.10). Hypothesis H4 is concerned with the strengthening impact of “external support” in the relationship between “innovations practices” and “business survival”. Results exhibited that “external support” has a significant moderation effect in the relationship between “innovation practices” and “business survival”; the t -value was found to be 1.698 which is greater than the threshold 1.96, p <0.10. Therefore, hypothesis H4 was accepted on a statistical basis.

Discussion of results

The SME sector has been significantly affected by the COVID-19 pandemic. During this crisis, SMEs faced difficulties in performing their operational activities and severe financial risks (Omar et al., 2020 ). Previous studies revealed that SME managers have responded in different ways to the difficulties created by the outbreak of the pandemic (Gerald et al., 2020 ; Guo et al., 2020 ; Indriastuti & Fuad, 2020 ; Sobaih et al., 2021 ). Additionally, the literature illustrated the importance of external support for performance of SMEs after they have been exposed to the repercussions of the COVID-19 pandemic (e.g., Ahmad et al., 2020 ; Song et al., 2020 ). The main purpose of this study is to highlight the importance of “external support” in enhancing the impact of SMEs’ innovation practices as a response to the COVID-19 crisis and its effect on business performance and the likelihood of their survival.

This study was based on a comprehensive model developed to test the moderating role of external support in the relationship between SMEs’ innovation practices adopted during the COVID-19 pandemic and business performance and survival. The results of the study showed that despite the great shock to SMEs caused by the COVID-19 crisis, managers of these enterprises have developed new coping practices. The results of the present study confirmed that the innovation practices of SMEs have a significant and positive impact on business performance ( p < 0.01). These results indicate that the new management practices (in the field of external knowledge, structures and leadership, regeneration, or employee activities) that have been implemented in SMEs after the COVID-19 outbreak may result in improved performance and increased chances of survival for these enterprises. In other words, SME managers’ intensive communication with others to obtain business information and assistance, including using social media to market their products, spending reductions through workplace sharing and performing tasks online, worker participation in thinking about the business’s future, and active involvement in SME social networks, may positively reflect on the business’s financial performance. These results partially verified the findings of Gerald et al. ( 2020 ) on the importance of technology utilization practices to improve SME performance during the COVID-19 pandemic.

The results of the present study also confirmed that the innovative practices that were used by SMEs during COVID-19 significantly affect their likelihood of future survival ( p < 0.01). Indeed, the research findings indicated that SME survival indicators were positively affected by innovative practices in the fields of external knowledge, structures, leadership, and renewal of employee activities. These findings indicated that SME managers’ intensive communication with others to obtain business information and assistance may increase the likelihood of the business’s survival. The results of the current study supported the findings of Omar et al. ( 2020 ), which stated that small business managers have used financial and marketing strategies to ensure that their projects remain relevant in the face of the challenges created by the COVID-19 crisis.

In regard to the study findings, the impact of innovation practices on the performance of SMEs (0.45) outweighs their impact on enterprise survival (0.054). This indicates that managerial innovation practices have a greater impact on an enterprise’s short-term compared to long-term performance. These findings agreed with Freeman ( 2004 ), who pointed out that enterprise performance is an outcome of innovation.

The results also indicated that external support provided to SMEs has a significant role in tempering the relationship between innovation practices and enterprise survival. These results indicate that a moderating role of external support is mainly limited to the relationship between innovation practices and enterprise survival, rather than the enterprise short-term performance. The external support provided to SMEs during the COVID-19 pandemic, whether in the form of training, consultancy, or finance, supports the continuity and survival of these enterprises. The findings partially support the arguments of Song et al. ( 2020 ) who called on the finance providers to amend their policies to provide SMEs with the required finance to cope with the repercussions of the COVID-19 pandemic crisis. The present study results signify a vital role of external support in strengthening the association between innovation practices undertaken by SMEs during the COVID-19 pandemic crisis and the survival of these enterprises. At the same time, these results denote that this role is less imperative when addressing the relationship between innovation practices and the performance of these enterprises in the short term.

Implications

This study has implications for SME managers, governments, and policymakers. This study has four implications that may help SME managers mitigate the repercussions of this crisis. First, SME managers should continue to develop creative practices in relation to all enterprise activities to adapt to the challenges imposed by the pandemic. Second, SME managers should keep abreast of necessary business information solutions (whether through networking with other entrepreneurs or consultations and training) to help them make rational decisions to overcome the ordeal. Third, SME managers should constantly update their plans and strategies to achieve the flexibility required to respond to the ramifications of COVID-19. Fourth, because the situation of SMEs after the pandemic will largely differ from their pre-pandemic status, SME managers should develop a strategic business plan to address the negative effects of the crisis on their businesses after the pandemic to ensure continuity and survival.

Additionally, this study provided empirical evidence of the importance of external support (whether governmental or nongovernmental) for the survival of SMEs in times of crisis. As such, this study has important implications for governments and policymakers, who should develop policies to provide more stimulus packages for SMEs that include financing facilities, advisory services, and training. Moreover, governments should encourage NGOs to provide different kinds of support to SMEs in the form of consultations, training, advice, guidance, and psychological support to help them cope with the difficulties caused by COVID-19. Additionally, because the COVID-19 crisis has greatly affected SMEs’ financial position, governments must encourage finance providers to adopt more flexible policies when financing SMEs, such as low-interest loans and the consideration of the enterprise’s financial position for loan installments.

This research also has significant theoretical implications because it developed a comprehensive model to examine the role of external support received by SMEs during the COVID-19 pandemic in moderating the relationship between innovation practices adopted by SMEs and their performance and survival. Thus, this study added to the literature by arguing that in times of crisis similar to COVID-19, external support can help an enterprise obtain more positive results from innovation practices in the form of performance improvements and strengthened survival indicators. Crises usually weaken the performance of SMEs and their ability to survive (Michael & Robbins, 1998 ; Robbins & Pearce II, 1993 ), but in this case, external support can push innovation efforts. Likewise, crises usually affect an enterprise’s sales, production capabilities, and financial position. Therefore, the present study proposes that SMEs develop new practices and ideas to obtain knowledge and information from external parties, build effective structures for production and expenditures, follow motivational leadership, and implement effective employee activities to ensure good business performance and protect the future of the enterprise.

Conclusions

The current research proposes a theoretical model for studying the moderating effect of external support, provided during the COVID-19 epidemic crisis, in strengthening the link between innovation practices and the performance and survival of SMEs using the PLS-SEM algorithm. The study based on four basic hypotheses in relation to the association between these variables. The main findings of the study suggest that the innovation practices of SMEs have a significant impact on the performance and survival of SMEs. Additionally, the study results confirmed the significant and moderating role of external support provided to SMEs during the COVID-19 epidemic crisis and the survival of the business. Results of the study showed that the policies adopted by Saudi’s government to reduce the repercussions of the COVID-19 epidemic crisis on SMEs, which represented numerous financial support packages and encouraged the support of nongovernmental organizations, was expected to contribute to the resilience of these enterprises in facing such a crisis.

Although the current study has achieved findings that have significant implications for SME managers and policy makers, it has some limitations. Because of the wide range of innovation practices, the study focused only on administrative innovation practices and excluded other fields, such as technological innovations. Another limitation of this study is the measurement of the performance of SMEs using financial and marketing indicators and ignoring other indicators, such as administrative, social, and psychological elements.

Future research could expand upon these conclusions by addressing the shortcomings of the current study. Because of the diversity of the sectors to which small enterprises belong, it would be beneficial to conduct a sector-based examination of their practices. Furthermore, to obtain comprehensive and in-depth insight into the nature of the relationship between SMEs’ innovation practices, external support, and business performance and survival, all indicators for measuring enterprise performance should be considered, and the types of innovation must be addressed.

Availability of data and materials

The datasets generated during and/or analyzed during the current study are included in the article, and the raw data are available from the corresponding author on reasonable request.

Abbreviations

Survival of small and medium enterprises

Coronavirus

Partial least squares structural equation modeling

Nongovernmental organizations

Organization for Economic Co-operation and Development

General Authority for Statistics database

Composite reliability

Average variance extracted

Model goodness of fit

Variance inflation factors

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Adam, N.A., Alarifi, G. Innovation practices for survival of small and medium enterprises (SMEs) in the COVID-19 times: the role of external support. J Innov Entrep 10 , 15 (2021). https://doi.org/10.1186/s13731-021-00156-6

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DOI : https://doi.org/10.1186/s13731-021-00156-6

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• Small- and medium-sized enterprises (SMEs)
• SME performance
• SME survival
• Coronavirus (COVID-19) crisis
• Innovative practices
• External support