IN THE third and final part of this series on recession strategies for SMEs, we explore the uniqueness of the current recession, and why small businesses can eclipse large firms in their ability to respond.

PREVIOUS recessions can provide pointers as to possible responses by businesses but what makes the present downturn unique is the increasing globalisation of economic activity.

Globalisation has sprung largely from declining costs in transport and communications, and because of this local actions can have far-reaching consequences. Globalisation creates new opportunities and threats, and adds complexity to business decision-making.

Even large, powerful multinationals may find it difficult to manage the global influences that shape business plans and performance under recession conditions.

Small business and recession: 1. Beware contradictions
Businesses need also be aware that recessions in general create contradictory circumstances -- some constraining firms, and others enabling.

For example, falling GDP exerts squeezes consumer expenditure and confidence, with implications for business performance, but at the same time, this reduces asset prices, which helps firms with resource acquisition.

And while falling demand will lead to business closures -- particularly among new firms -- this hands greater market share to surviving firms.

There is no single ‘recession effect’ for businesses, nor any ‘best way’ to adapt to the challenges posed by economic downturn.

Successful strategies to cope with recession are likely to be context-specific, varying across industrial and geographical settings.

Small business and recession: 2. A sliding scale of discretion
Markets impart pressure on firms to adapt to changing circumstances, or to risk decline and exit. But while businesses may use discretion regarding the recession strategies they adopt, the degree of choice is usually constrained by resources or circumstances. Larger enterprises, for example, can use discretion more freely than SMEs due to their greater market resilience.

In general, though, firms adapting quicker and better -- without necessarily having knowledge of what constitutes ‘better’ in advance -- will be more likely to survive the recession and position themselves well for economic upswing.

Small business and recession: 3. Why SMEs often defy downturns
Small businesses are more vulnerable to market shifts, as they lack resources and have a smaller range of products or services, yet some studies show small businesses report more limited impact of recession than larger enterprises.

This may be because small businesses possess the flexibility to adjust processes, prices and products quickly in response to recession – all crucial factors in securing survival.

Small firms are also more willing to engage in risky investment and innovation to improve performance, as they realise the current successful situation cannot continue indefinitely.

A study of US software firms during the dot-com downturn, for example, found start-ups were much more likely than larger businesses to pursue revenue-generating strategies as means of coping than strategies entailing cost reductions.

This blogpost was drawn from ‘Business Strategies and Performance During Difficult Economic Conditions’, published by Kingston University Department of Business Innovation and Skills. Click here to download the entire report.

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