Learning from the Covid-19 shock
In recent years, an increasing number of female entrepreneurs in Bangladesh are opting for an online platform to materialize their business visions. These noteworthy group of young women not only create jobs and opportunities, but they also become a source of inspiration for the following generation of go-getters. The sustainability and livelihood of these businesses, however, heavily depend on the external environment and the business climate in which they work in, a phenomenon which has proven beneficial and lucrative to many in this industry but could also pose severe risks in the face of external shocks.
In the wake of Covid-19, small businesses in Bangladesh, with an already narrow set of coping mechanisms and a severely limited insurance or risk management capacity, stand to bear the brunt of the pandemic.
Hardships faced during this period will be inevitable, even though existing virtual platforms imply relatively lower overhead costs, allowing businesses to momentarily scale down operations in the short run. Moreover, production facilities of these businesses are typically small, enabling different products to be easily incorporated in their stocks to meet prevailing consumer demand.
In order to gain more insight on the resilience of female entrepreneurs, researchers at BRAC Institute of Governance and Development (BIGD) carried out a study titled, “How resilient are female online entrepreneurs? Learning from the Covid-19 shock“, under their Rapid, Research, Response to Covid-19 initiative, where they explored the challenges faced and coping mechanisms or strategies to endure in this pandemic.
A rapid survey was conducted on a sample of 122 female owned online businesses from April 14-21, from Facebook based businesses and excluded larger e-commerce firms. The study was led by Mehnaz Rabbani, BIGD, Iffat Zahan, BIGD, and Maria Matin, BIGD.
Who are these entrepreneurs?
Majority of these female entrepreneurs are young (between the ages of 21-35) and educated, more than half of whom earn solely through their online businesses or are majority contributors of income in their family.
Impacts of Covid-19 on business operations:
Given that Covid-19 coincided with Pahela Baishakh and Eid-ul-fitr, two holidays during which businesses experience peak sales, it is no surprise that majority of the entrepreneurs reported a decline in their earnings compared to their previous Baishakh sales in 2019. Losing the opportunity to capture markets and reap revenues, almost one-fifth of the businesses also experienced a revenue drop between 91-100%. (Figure 1).
Despite the harsh fall in revenue, some online entrepreneurs expressed their commitment to retain their employees with full payment for a certain period of time. Unfortunately, this is likely to be short lived and if sales don’t stabilize in the imminent future, there is a high probability that current employees will be rendered jobless within eight months (Figure 2).
Additionally, the knock-on effects from the loss of revenue, however small, is not insignificant ad repercussions are further multiplied to all those who are linked to the supply chain. Domestic backward linkages are often formed through these online businesses as entrepreneurs are found to procure products from local vendors (Figure 3). If these vendors source their income primarily through these linkages, then the negative impact on their livelihoods will be quite substantial.
Furthermore, bearing in mind that delivery services require service providers to be on the frontlines, the risks entailed in these jobs have also increased. Therefore, the negative consequences from Covid-19 have far-reaching effects when all actors in the supply chain (employees, vendors and delivery companies) are considered.
Coping mechanisms undertaken: As of April 2020
Never having dealt with a shock of this magnitude and nature, interestingly, business owners’ coping strategies were predominantly passive as they preferred to give product discounts to encourage sales and cancel new orders to prevent an oversaturation of unpurchased stock as opposed to actively laying off employees (Figure 4). However, if sales continue to dive, and lockdowns are extended, the entire supply chain (which includes employees, vendors, delivery services) will be negatively impacted.
Even though most were inclined to mitigate the damages from this shock, few entrepreneurs stood out through diversifying their product baskets and business ventures, which has placed them at an advantage during these trying times. Additionally, entrepreneurs believed they could get back to their previous state of operations in time.
Note: This was a multiple response query, and the percentages are depicted as percentage of cases. It is very possible that the same entrepreneur could be opting for more than one coping strategy
Perception on survival and recovery from impacts of Covid-19
Most entrepreneurs were fairly confident in their ability to resume their previous state of operations in spite of such bleak projections however these findings are heavily contingent on the study period (conducted mid-April). Based on the notion that lockdowns will be lifted by the end of April, over half of the entrepreneurs were optimistic they could recover their losses within one year, three years being the maximum recovery period if necessary. Very few were doubtful about the future of their business.
Access to assistance
Entrepreneurs, reportedly believed that a stimulus package would be beneficial for them (Figure 6), but on further inquiry, were unaware about the details of the package itself or how it will be disbursed to them. However, online businesses are often unregistered and operate in the informal sector without a trade license, and thus, could be rendered ineligible for said government SME stimulus package. Furthermore, given that these businesses are mostly self-financed and hold inadequate savings for tackling a shock of this prolonged period, lower revenue earnings and recurring costs will put them in the brink of debt, and maintaining their existing state with no formal financial assistance may be their biggest challenge yet.
Online businesses are often believed to be easier to create and cheaper to maintain than a retail storefront. Albeit true, this study reveals to us that no business can remain impervious to the adverse effects of Covid-19, as majority of the online businesses have exacerbated as a result of this outbreak. As their economic resilience takes a blow, these financially independent, persevering entrepreneurs have to act fast, think smart and yet again, rise against a new set of hurdles. A follow up survey within this research project will track how these businesses do in the coming months, which will provide further clarity into their resilience against such pandemic driven shocks.