CC BY
28ECONOMIC SCIENCES
ANTI-CRISIS STRATEGY CAUSED BY UNCERTAINTY OF THE SMALL BUSINESSES UNDER
THE COVID-19 PANDEMIC
Shengelia T.,
Doctor of Economic Science, Full Professor at Ivane Javakhishvili Tbilisi State University, Georgia
Berishvili K.,
PHD in Economics, Associated Professor at Ivane Javakhishvili Tbilisi State University
Jganjgava K.
Doctor of Business Administration Science, Invited Professor at Ivane Javakhishvili Tbilisi State University, Georgia
ABSTRACT
A market economic system based on the means of production is characterized by fundamental uncertainty. The differences between the fundamental uncertainties and the risks lie in the fact that it is impossible to empirically measure the level and dynamics of future threats. A correct understanding of the uncertainty is essential for the study and analysis of the crisis. Under the influence of the COVID-19 pandemic, world economy found itself in a new global crisis, which had a significant impact on the rise of economic and social uncertainty, the degree of which is so high that it is impossible to predict the model of the economic and social development due to the current pandemic. The current economic crisis is characterized not only by global losses but also by the limited sources of compensation. According to scientists [Adzic., Al-Mansour, 2021], a crisis of this magnitude is the most unprecedented economic event of the last century.
Keywords: Fundamental Uncertainty, Coronavirus, Small Business, Crisis, Research, Digitization of Business.
1. The importance of the studying uncertainty models during a small business crisis
The coronavirus pandemic (COVID-19) has been rapidly speeded around the world, which led to the recession of the global economy. Despite global efforts to combat the virus, it continues spreading, which has expanded the research of its economic consequences. The impact of the crisis was the most substantial for small businesses. Due to the rapid spread of the coro-navirus throughout the world, small businesses have faced the challenges of pandemics, quarantine, and restrictions.
At the initial stage of the COVID-19, small businesses were substantially affected by the introduction of self-isolation and quarantine. The decline in demand has caused significant damage to the small business sector. The policy of pausing the economy to maintain the salaries of the employees has restricted the activities
for small business companies, which is reflected in their financial performances. Small businesses were unable to switch to an online format for their goods and services as were at risk of bankruptcy. For some organizations, such as travel agencies, restaurant businesses, after the introduction of anti-epidemic restrictions, income fell by 90% (Shengelia, 2020).
The unprecedented nature of the situation is also reflected in the fact that COVID-19 has no geographical boundaries. In the first quarter of 2020, economic activity declined in countries with large economies such as China, the United States, Japan, and the European Union as they also took different approaches to deal with the pandemic. Overall, the World Bank estimates that global GDP shrank by 11.2% in the first quarter of 2020 [Haas, 2020], well above a similar rate to the global financial crisis (Table 1).
Table 1.
Dynamics of annual GDP by countries in%
2017 2018 2019 2020
World GDP 3,3 3,0 2,4 -7,7
Developed countries 2,5 2,1 1,6 -8,4
USA 2,4 2,9 2,3 -7,9
EU 2,5 1,9 1,2 -10,1
Japan 2,2 0,3 0,7 -6,8
Developing countries 4,5 4,3 3,5 -6,6
China 6,8 6,6 6,1 -4,9
Turkey 7,5 2,8 0,9 -6,8
Mexico 2,1 2,2 -0,3 -8,7
Saudi Arabia -0,7 2,4 0,3 -5,7
India 7,0 6,1 4,2 -9,0
South africa 1,4 0,8 0,2 -8,0
Source: OECD, 2020.
According to the International Monetary Fund, the decline in global GDP in 2021 will be 3%, the highest rate since the Great Depression [http://cbr.ru/Collec-tion].
The pandemic crisis has limited traditional small business opportunities, with new ones emerging. The most difficult problem was created in the value chain. Small businesses are heavily dependent on customers and suppliers, so changes in the value chain have a significant impact on all of its participants. The closure of the national borders led to the disruption of the logistics network, and after the reduction of stocks, almost all participants in this network were threatened.
The world is experiencing a huge economic crisis for which it has been unprepared, so even today there are no effective proposals for strategies that are important to overcome the small business collapse caused by the Covid-19 pandemic. Therefore, it is important to consider uncertainty and risks during studying small business crisis behavior. According to Etermad (2020), a significant result of the last six months is that even the most trained institutions are approaching disaster. Haas (2020) notes, that after a pandemic, the universe will find itself in a larger, no less turbulent zone].
Before the crisis, the price was the most important criterion during choosing a supply chain, leading small businesses to single suppliers and small stocks. It seems that during the pandemic, this choice turned out to be one of the most important causes of the small business crisis. At the same time, dependence on one supplier has undergone a transformation into the need to diversify stocks, which has led to an increase in funding sources and which has led to the financial instability of a small company.
Illustrating the correlation between environmental and small business threats, these examples demonstrate that a global vision is needed to adapt models of anticrisis behavior. There is no single, optimal choice for overcoming uncertainty, however, the importance of multivariate strategies comes first. Small firms found themselves unprepared for such approaches, leading to a high level of uncertainty. In addition, when a small business is in the early stages of its life cycle, lack of experience limits its choice, and lack of resources prevents it from choosing an effective strategy, which has exacerbated the problems of small firms.
The practice has proven that the main way to save a small business in the face of the Covid-19 crisis is through technological adaptation (primarily online solutions). Small businesses, that have maintained traditional strategies, have failed to maintain the pace of development. A business that has undergone a digital transformation has found itself in a different situation. Small businesses, using their dynamic capabilities, quickly implemented changes through their own platforms (e.g., Yandex, Alibaba, Amazon, etc.). Despite the success of individual companies, the overall level of threat to small businesses has increased, which has been reflected in the formation of a strategy to oust competing companies from the market.
Undoubtedly, the impact of economic uncertainty on small businesses is more substantial than on large
ones. This view is supported by the fact that small businesses require a prompt response to market factors, which, on the one hand, increases their sensitivity to market trends, but on the other hand creates long-term threats. Businesses that do not have the potential for rapid change are at significant risk. For a given stage of economic development, the factors that create_uncer-tainty for small businesses are the following:
• Negative impact of the pandemic;
• Factors of shock change in oil prices;
• Targeted government regulation and support;
• Digital transformations;
• Changing the consumption patterns of small business goods and services;
• Unstable exchange rate, etc. [Etermad, 2020).
In the process of studying anti-crisis strategy, the
concept of risk and the ways of overcoming crisis problems that small companies face should not be ruled out. However, the analysis of factors that increase or decrease the level of experience in solving crisis problems, which is a source of uncertainty, is important for the accuracy of the crisis period research. Different approaches are used to address the issue of uncertainty arising in the course of a crisis. In the long run, D. Ackerloffs uncertainties relate to a relatively short period. These approaches are complemented by O. Williamson [Willemson 1996] on opportunistic behavior, when one party acts opportunistically to maximize its own interest at the expense of the other, while the other party cannot obtain the necessary objective information to make a reasonable decision. During the Covid-19 crisis, both phenomena (asymmetry and opportunistic behavior) were clearly observed and contributed to the deepening of the crisis. The major mistake of small businesses in the transition from the first wave of the coronavirus to the second was to refuse to institutionalize successful practices in the long run. The mistake made after the first wave was also an attempt by a small business to maintain the old business model.
2. A qualitative research of small enterprises under the Covid-19 pandemic
After analyzing the uncertainty, we compiled a list of factors that, in the opinion of the researchers, influence the behavior of small businesses. Some of them have already been discussed above (disruption of supply, the inability of supply chains, lack of financial resources, etc.). In the course of the research, 30 questions were used that correspond to the description of a specific factor. It became necessary to rank the factors to assess their importance and the tendency to change. For example, to the question "Will the change in revenue affect the state of small business in 2021?", We received answers that indicate the factors that affect the decline in revenue, or its growth.
The merits of some of the factors included in the questionnaire below are reflected in the studies of a number of authors. According to the team of authors, which M. Rapaccini led by [Rapaccini M, 2020] Lock-down (work ban) has had a negative impact on small businesses. D. According to Gerdeman [Gerdeman, 2020], stabilizing the supply chain under the Covid Pandemic becomes a key factor in restoring business in times of crisis.
Differences of opinion are caused by the assessment of dismissal in a pandemic crisis. For example, n. Donthu [Donthu, 2020] argues that people are losing their jobs at a rate we have not seen since the Big Depression of the 1930s. A. Tarki [Tarki, 2020] believes, that in the Covid-19 crisis, the problem of risks associated with bankruptcy, including dismissal, is extremely urgent.
Traditionally, innovation researchers have argued that it is innovative solutions that will be most in demand in a post-crisis economy [Zenker., Kock.2020]. S. Retter et al. Pedersen [Ritter., Pedersen. 2020] discuss the important role of the Covid-19 crisis in stimulating innovation. Difficulties with working from home, revealed by J. Carnival et al. Hataka [Carnevale., Hatak 2020]. Scientists have studied the causes of conflict between work and the environment, work and family. Remote work has changed the approach to work organization. Communication techniques and methods
developed over many decades have changed dramatically. Prospects for communication based on the use of information and communication technologies, the use of the Internet and social networks, as well as web technologies have become relevant. In the transformation that requires the modernization of IT technologies. State support around the world aims to maintain employment through financial assistance. S. Nenonen et al. Storbacka [Nenonen., Storbacka., 2020] When discussing new business opportunities, they argue that co-crisis not only causes problems but also creates opportunities. They argue that co-crisis not only causes problems but also creates opportunities. This is also confirmed by our research, according to which the pandemic has positive results, including business digitization, new opportunities, new strategies, new channels of communication (Table 2).
Table 2.
Qualitative Research Results of small enterprises during Covid-19 pandemic
Factors Tendency to change %
Organization of jobs Remote 53,3
Solvency Reduced 14,1
Internet speed Insufficient 29,4
Modern technologies Insufficient 6,9
Governance Reduced efficiency 27,4
Financial resources Insufficient 51,9
Dismissal Growth 62,1
Costs Growth 32,9
Technological process Unstable 28,6
Logistical problems Frequent 41,9
Income Reduction 51,5
Introduce new strategies grew up 19,3
new opportunities grew up 12,2
Digital Innovations grew up 32,1
Source: Compiled by the authors
As we can see, most of the small companies have been able to adjust the production and sales process in accordance with the new co-epidemic crisis, however, the pace of these changes is insufficient, which has a significant impact on the economic development of the country. In addition, digital choice analysis has given us more basis for optimism, including in terms of the growth component (revenue, new opportunities, etc.). It should be noted that the change in digital services has had a significant impact on the study participants, confirming our hypothesis about new small business opportunities in the face of covid crisis.
Finally, the analysis allows us to conclude that the changed anti-crisis directions should include areas related to business climate transformation and the intensification of the use of digital technologies.
3. Conclusions
During the first wave of Covid-19, most small businesses suffered losses as a result of self-isolation and the introduction of a quarantine regime. Demand fell sharply, causing significant losses to the SME sector. The policy of pausing the economy by maintaining the salaries of employees has significantly limited the activities of small business companies.
A large number of small companies have been able to adapt their production and sales processes to the new COVID pandemic crisis, but the pace of these changes is insufficient, which has a significant impact on the economic development of the country. In addition, digital choice analysis has given us more reason to be optimistic, including in terms of the growth component (revenue, new opportunities, etc.). It should be noted that the change in digital services has had a significant impact on the study participants, which confirms our hypothesis about new small business opportunities in the face of a crisis.
References
1. Kozak Y, Shengelia, T. Gribincea A. 2020. The current state of the world economy, international economic relations and the paradigm of global issues. World economy and international economic relations. Vol. 4, Pages 5-11.
2. Shengelia T, Y. Kozak Y, Kirkitadze Z. 2020 FDI motivation effects on Host countries World economy and international economic relations. Vol. 4, Pages 15-20.
3. Shengelia T, Gasviani B. 2020. Establishment of the stages of organizational development in Georgian SME's. World economy and international economic relations. Vol. 3, Pp. 11-15.
4. Shengelia T, Gelashvil M 2020. Export potential of Georgia. World economy and international economic relations. Vol. 3, Pp. 29-33.
5. Shengelia T. 2020. The post-coronavirus economy of the world and Georgia. Economic and Business № 12.
6. Shengelia T. 2017. The role of state regulation of investment in the Georgia business development. International business in the world economic system.
7. Shengelia T. 2014. Tendencies of The Capital International Movement and Its Influence on the Economy of the Sovereign State. International Journal of Science, Technology and Medicine 6 (1), 49.
8. Shengelia T. 2017. The role of state regulation of investment in the Georgia business development. International business in the world economic system.
9. Berishvili Kh. 2020. Implementation of the concept of business social responsibility in the political systems of social democracy. World economy and international economic relations Volume 3.
10. Adzic S., Al-Mansour J,2021. Business analysisin the times of COVID-19: Empirical testing of the contemporary academic findings// Management Science Letters, vol. 11, p. 1-10.
11. OECD. 2020. Statistical Insights: Small, Medium and Vulnerable. URL: http://www.oecd.org/sdd/business-stats/statistical-insights-small-medium-and-vulnerable.htm.
12. Etermad H, 2020.Mana ginguncertainconsequencesofa global crisis: SMEs encountering adversities, losses, and new opportunities. Journal of International Entrepreneurship, vol. 18, pp. 125-144.
13. HaasR, 2020. The world: brief introduction. NY:Penguin Press.
14. Akerlof J., Schiller R. Spiritus Animalis: or How Human Psychology Manages the Economy and Why It Matters to World Capitalism. M.: UnitedPress LLC.
15. Knight F.H. 2003. Risk, Uncertainty and Profit. M.: Delo, 360.
16. Williamson O. Economic institutions of capitalism: Firms, markets, "relational" contracting. SPb .: Lenizdat; CEV Press 1996 702 p.
17. Rapaccini M., Saccani N.,Kowalkowski C.,Paiola M.,Adrodegari F., 2020. Navigating disruptive crises through service-ledgrowth: The impact of COVID-19 on Italian manufacturing firms. Industrial Marketing Management. vol.88, pp.225-237.
18. Gerdeman D,2020. How the Corona virus Is Already Rewriting the Future of Business. HBS Working Knowledge, URL: http://hbswk.hbs.edu/item/how-the-coronavirus-is-already- rewriting-the-future-of-business.
19. Donthu N., Gustafsson A., 2020. Effects of COVID-19 on business and research. Journal of Business Research, vol. 117, pp. 284-289.
20. Tarki A., Levy P., Weiss J. 2020. The Coronavirus Crisis Doesn't Have to Lead to Layoffs. In Coronavirus and Business: The Insights You Need from Harvard Business Review. Harvard Business Review. URL: https://www.harvard business.org/wp-content/uploads/2020/03/HBR_The_Coronavirus_Doe snt_Have_to_Lead_to_Layoffs.pdf.
21. Zenker S., Kock F., 2020. The coronavirus pandemic - A critical discussion of a tourism research agenda. Tourism Management, vol. 81, pp. 104-164.
22. dah. hedal. harisiHeH., Harris L. 2020. The impact of Covid-19 pandemic on corporate social responsibility and marketing philosophy. Journal of Business Research, 2020, vol. 116, pp. 176-182. DOI: 10.1016/j.jbusres.2020.05.030.
23. Carnevale J.B., Hatak I.,2020. Employee adjustment and well-being in the era of COVID-19: Implications for human resource management. Journal of Business Research, vol.116, pp. 183-187.
24. Nenonen S., Storbacka K., 2020. Don't adapt, shape! Use the crisis to shape your minimum viable system- And the wider market. Industrial Marketing Management, 2020, vol. 88, pp. 265-271.
THE ECONOMIC DETERMINANT OF THE EDUCATION SYSTEM
Veshapidze Sh.,
Ivane Javakhishvili Tbilisi State University, Georgia
Zoidze G., Batumi State University, Batumi State Maritime Academy, Georgia
Berishvili Kh.
Ivane Javakhishvili Tbilisi State University, Georgia
ABSTRACT
Achieving a high level of education is largely due to the country's economic development. According to international rankings that assess students' skills, the correlation between its outcomes and the country's GDP is quite high. However, investing in education is several times more profitable than in other sectors.
Achieving the desired level of education in Georgia, including higher education, depends significantly on the growth of the country's gross domestic product and, consequently, on education funding. Therefore, it is important to develop the skills of the population (invest in education) in order to increase the country's GDP.
