Strategies for SMEs after Global Recession

Introduction The impact of the sub- prime crisis along with a slowdown in mortgages has led to a significant lowering of growth estimates in USA. Since the United States dominates the global economy, this had led to slowing down of economies of all major countries. The recession has affected the world economy very badly. It had shoddily affected almost all economies of the world like USA, United Kingdom, Canada, Japan, Australia, China, and New Zealand. World's greatest banks suffered losses and thousands of people lost their jobs. Countries like Greece and Iceland have become completely bankrupt. Unsurprisingly, smaller and weaker companies have struggled the most in this hostile environment. Unlike large corporations, small and medium-sized enterprises (SMEs) have little flexibility to cope with plummeting demand, cancelled orders, scarcer financing and delayed payments. SMEs in Asia are no exception, despite their dynamism and rapidly improving economic outlook crisis management is their top priority. The fate of SMEs is particularly crucial since SMEs account for bulk of employment in many of the region's economies. They have been hit disproportionately hard by the global recession, particularly those companies, reliant on exports. The paper examine the how have value chains influenced the effect of the crisis on SMEs in Asia and what opportunities/threats has the crisis presented to SMEs internationally. The paper will be helpful to the SME managers to formulate strategies to fight recession. Contribution of SMEs in Asian Economy According to Asia-Pacific Economic Co-operation (APEC) forum, 95% of businesses in the Asia-Pacific region are SMEs, and they employ 60% of the workforce. In terms of value, the sector accounts for about 40-45 per cent of the manufacturing output. (APEC, 2010). In China about 42 million SMEs are in operation as of 2008, equivalent to 99% of the country's total enterprises and employing 75% of urban dwellers. They accounted for 60 % of GDP and 62.3% of exports in value terms (People's Daily Online, 2010). In Taiwan, according to the Ministry of Economic Affairs SMEs account for 98% of enterprises, 77% of employment and 17% of export sales. (MEA, Tiawan, 2010). In Hong Kong, they account for 98% of businesses and 48% of total employment (excluding civil service positions). In India too, the SMEs play a pivotal role in the overall development of country. It is estimated that in terms of value, the sector accounts for about 45 per cent of the manufacturing output and 40 per cent of the total exports of the country. The sector is estimated to employ about 59 million person in over 26 million units throughout the country. There are over 6000 products ranging from traditional to high-tech items, which are being manufactured by the SMEs in India. Indian SMEs constitute about 80% of the country's industrial enterprises and employing 70% of the workforce. (MSME, 2009) Importance of SMEs for Socio-economic Development Poverty is one of the major global problems. One in five people in the world lives in miserable poverty. About 50% of the world population survives on less than USD 2.00 a day. Poverty denies a person to make choice of alternative avenues for economic, social and cultural growth that can better his life. Poverty ensures that all principles of human rights are violated. Not only in Asia, but also across the world, the SME sector makes a tremendous contribution in reducing poverty. SMEs generate new jobs in the economy thus they contribute affirmatively to employment generation and poverty alleviation. Further, it is claimed that this additional employment comes with relatively low investments in capital compared to the large enterprises. Therefore, it has a lot of relevance for those economies that are characterized by surplus labor and paucity of capital. Major Recessions and Their Causes A recession is a decline in a country's gross domestic product (GDP) growth for two or more consecutive quarters of a year. …