The Impact of Covid-19 on Profitability of Ict Small and Medium Scale Enterprise in Kaduna North Local Government Area

Abstract

The purpose of this research is to investigate how Covid-19 affects ICT small and medium scale businesses. Covid-19 has been the source of changes in the business environment across world from the beginning of year 2020. The effects on ICT small and medium scale businesses are nearly unknown, therefore this research is unique. The aim of this study is to gain more knowledge on how ICT small and medium scale businesses are responding to the pandemic. By following a qualitative research method, the study will explore and conduct a deeper understanding on the ICT small and medium scale businesses experience through a data collection. The literature review has been established, theories are mostly related to digital business environment and value chain activities. The literature review has been summed up into a conceptual framework which illustrates the connections between the theories and Covid-19.

Furthermore, the conceptual framework has been used to analyze the findings from the empirical data which was conducted in a multi-case study. The analysis chapter discusses similarities differences between the cases and connection to theory. Lastly, the conclusion chapter of this research concludes the findings and analysis, and it contains theoretical implications, recommendations, limitations and suggestions for future research.

CHAPTER ONE

INTRODUCTION

1.1 Background of Study

The coronavirus outbreak, which now is more referred to as Covid-19 as a shortened version of “coronavirus disease of 2019”, first appeared in the region of Wuhan, China. The virus spreads incredibly quick between people and in just a few months, tens of thousands of people worldwide have become infected (Mph Online, 2020). Furthermore, as the Covid-19 outbreak spreads, companies across the world are also getting affected by it. Some of the world’s biggest companies had negative effects such as manufacturing being disrupted, stores being empty without consumers, and flagging demand for their wares (Eavis, 2020). Some companies may also struggle because of their investors being more reluctant to lend them money after the outbreak (Eavis, 2020). Some of the most hard-hit sectors include airlines, leisure, and hospitality. Bars and restaurants are also being heavily affected (Fraser, 2020).

This pandemic has become the biggest threat to the global economy and financial markets as China, North America and Europe have been the most hard-hit markets and the Organization for Economic Co-operation and Development (OECD) have downgraded its 2020 real GDP growth projections for almost all economies (see appendix A) (Nee Lee, 2020). Furthermore, some countries are starting to put their citizens on various forms of lockdown to slow the spread of the virus. These include national quarantines, school and work closures (Kaplan, Frias and McFall-Johnsen, 2020).

 

According to Ben May (2020), who is the head of global macro research at Oxford Economics, other than the number of cases of Covid-19 there is another key issue which is the level of distribution to economies from containment measures. Widespread lockdowns, such as in China, UK, and Italy have been targeted as some of the virus hotspots and if enough measures are not taken, it can cause even more panic and make the global economy weaken even more. The Covid-19 outbreak has caused fear for the way it is impacting the global economy and how it has impacted markets worldwide, causing plunging stock prices and bond yields (Nee Lee, 2020). Furthermore, the situation has made large banks and institutions to decrease their forecasts for the global economy and a new report from OECD shows that the 2020 growth forecasts have downgraded in almost all economies. Earlier this year, the percentage for the global economic growth was 2.9%, today that number has lowered to 2.4% (Nee Lee, 2020). The manufacturing sector is also one of the most hard-hit sectors by the virus outbreak, especially the Chinese manufacturing industry. Such a slowdown could lead to other countries with close economic links to china to be negatively affected. Chinese factories are taking longer than expected to resume their operations and the further spreading of Covid- 19 in other countries across the globe, indicates that the global manufacturing activity will remain subdued for longer than expected (Nee Lee, 2020).

 

According to a report by the United Nations Conference on Trade and Development (2020), China’s situation has been crucial to the global economy. China does not only hold an important role in the global economy because of its manufacturing industry and exporter of consumer products, but they are also the main supplier of intermediate inputs (energy, raw materials and semi-finished goods) for manufacturing companies abroad. In the global trade in manufacturing, around 20% of intermediate products originates from China as of today. Many companies are today worried that the measures put to contain Covid-19, such as restrictions to economic activities and movement of people, are hindering the supply of critical parts from Chinese producers, which therefore would lead to affecting their output (UNCTAD, 2020). As the Covid-19 outbreak can affect the productivity capacity and exports of any given country, European automobile manufacturers may face a critical shortage of components needed for their operations and Japanese companies could find difficulties in obtaining necessary parts for digital cameras and etc. Many firms right now are forced to respond to multiple fronts at once, both the protection of their workers ‘safety, as well as protecting their operational viability as many of them are experiencing difficulties with their supply chains (Alicke et. Alt, 2020). According to an article by McKinsey & Company (2020), there are some immediate actions that firms should consider in response to Covid-19. Some of these actions include optimizing production and distribution capacity, and to asses realistic final-customer demand. Some firms may experience inventory shortages as a result of the travel restrictions and lockdowns and therefore it is important to prepare for these possible implications (McKinsey, 2020).

 

Since the Covid-19 pandemic, many ICT small and medium scale businesses have started to experience some short- term changes. For example, Americans are adapting to e-commerce faster as sales online for groceries have increased in double the amount in the middle of march compared to earlier in the month. This due to physical stores closing because of the virus and is pushing consumers to go online for their necessities (Holman, 2020). According to statistics from Adobe Analytics (2020) e-commerce has overall increased with 25%. However, as with most external impacts, companies as well as ICT small and medium scale businesses, should adapt to changes that emerge from the external influence, by modifying their marketing, and change their operations and business models to gain better customer satisfaction (Denger, 2020). For newer and modern firms, integrity is an important aspect of business operations and it is also important to ensure that a planned response to the external impact is executed. According to Denger (2020), some methods for adapting a business to the current Covid-19 situation include, communicating with the consumers and explain how the crisis affects one’s business, meeting customers commitments and to ensure operational continuity, which will be challenging but is now more important than ever. Furthermore, many online sellers have started to develop new product offers and sale strategies due to the Covid-19 pandemic, however, this could potentially result in them taking unwittingly tax responsibilities that they may have not encountered before (Demery, 2020).

 

Furthermore, some assumptions among digital marketing experts are that when individuals are social distancing and staying at home, e-commerce sales will boost. Early findings are, however, suggesting that the reality is more complicated than that (Sterling, 2020). According to preliminary data from Quantum Metric (2020), e-commerce that is associated with specific physical stores, are experiencing an average revenue weekly growth rate increase of 52% and an 8.8% increase in conversion rates, compared to last year (Sterling, 2020). So far, the evidence is showing that foot traffic in shopping malls is going down. This could potentially put pressure on e-commerce, and many argue that consumers will shift more towards online purchases such as Amazon. However, since the possibility of distribution and manufacturing issues is increasing, product shortages and potential declining consumer demand due to people being quarantined and not wanting to risk exposure to the virus, could furthermore, cut e-commerce growth. Especially if the economy falters and goes into recession (Sterling, 2020). These findings and assumptions are, furthermore, suggesting that the outlook at the moment, is very uncertain among retailers. At the current moment, the outcome of Covid-19 is hard to predict when it comes to society, people’s health, economically and for firms. However, by looking at previous pandemics in history, the effects can be compared. One pandemic where the effects of e-commerce can be compared is the SARS outbreak (MphOnline, 2020).

1.2 Problem of study

As the topic of the Covid-19 outbreak is still current, there is currently a lack of studies about it and its relation to ICT small and medium scale businesses. What is so far known about this subject is that it does affect most types of companies somehow and it is affecting global and national economies.

Frost and Sullivan made a report named “The Coronavirus Outbreak and Its Impact on The Global Economy” (Frost and Sullivan, 2020) states that “The coronavirus isn’t only a global health crisis, but an economic one as well” (Frost and Sullivan, 2020). Many businesses across the world have been struggling due to China coping with the pandemic. The impacts of the Chinese lockdown have affected many outside of China as well, due to them being one of the most important economies and contributing greatly to the global economy (Singh, 2020).

 

The Covid-19 situation is bound to have many consequences for consumers, but many retailers have mixed opinions of the severity of Covid-19 and its impacts. One study by Digital Commerce 360 (Radial and Zoovu 2020), including a survey of 304 retailer shows that when asked what impact they believe the Covid-19 will have on their e-commerce business, 32% believed that it would go down somewhat while 30% answered that they think it would go up somewhat (Radial and Zoovu, 2020). The study, furthermore, states that online retailers are still continuing to adapt to the continuous changing environment that the Covid-19 outbreak causes. Digital Commerce 360 has a Top 100 list of (North American) retailers based on their global e-commerce sales and as of March 23, 62 of the retailers from the list have closed physical stores due to the pandemic. Most of them now have Covid-19 -related messages on their site and these are some of the changes they currently have to adapt to. The study furthermore states that online sales have increased with 52% compared to the same period last year. Offline retailers are now becoming more dependent on their digital commerce strategies and digital tools in order to keep their business going (Radial and Zoovu, 2020).

 

The virus has affected every part of the globe. Major economic powers such as USA, Spain, Italy, Germany, and many more countries have been hard hit by Covid-19 and the world is on a standstill position for an unknown period (Abdin, 2020). All types of production, such as technical, mechanical and technological, have reduced into an insignificant level which may lead into a deep global financial crisis in the near future. Even if Covid-19 is a huge health problem, some businessmen and entrepreneurs must continue with business, because consumption of essentials cannot be stopped during a time like this. The crisis can deepen even further if the supply of essential products is stopped. Therefore, when doing business in times of a pandemic, some strategic planning must be considered (Abdin, 2020). This includes taking precautions of employee’s safety and using alternative modes of communications like digital channels. It is important for companies to adapt to every digital tool available for them and to ensure that the business functions properly during the crisis. E- businesses and e-commerce are having great opportunities during this time, as consumers don’t have to go outside and expose themselves to the virus. Digital tools are a great option as they can be used for receiving orders, materials procurement, receive shipments, operationalize production, distribution and after sale service (Abdin, 2020).

 

The Covid-19 situation is constantly changing, and new challenges emerge. Many people’s daily lives have now changed as some countries are on lockdown and people are generally staying inside more (Hasanat et al., 2020). As less people are going into physical stores to shop, they turn more to e-commerce shops which is positive for their sales but can cause challenges with shipping delays (Radial and Zoovu, 2020). Companies such as Amazon, FedEx and UPS have been experiencing delays due to spikes in online shipping related to the Covid-19 situation (Porter, 2020). This shows that retailers and carries are dealing with high increase of online orders and according to Radial and Zoovu (2020), 57% of consumers alter their day-to-day activities to be as contactless as possible. Particularly the online orders of household goods and consumables have risen. Because of Covid-19 online order fulfillment slows as companies have more orders from consumers and the time to fulfill orders have risen. The time is measured by the length of time taken from when a consumer hits buy to when the order is picked up by the carrier for delivery and it has generally gone up from 15.1 hours to 21.2 hours (Radial and Zoovu, 2020).

 

A lot of industries experienced a huge downturn during the pandemic due to low patronage, notably the aviation industry, while others like the telecoms and ICT sector had a good year. The rest of this work is set to discuss SMEs in Kaduna North and find out how the Covid 19 pandemic affected their performance and profitability.

 

1.3 Research question

1. How are ICT small and medium scale businesses affected by the Covid-19 outbreak?
2. Which parts of their value chains are being impacted by Covid-19?
3. How are they dealing with the Covid-19 situation?

 

1.4 Purpose of study

The purpose of this study is to;

1. To explore how ICT small and medium scale businesses are being affected by the Covid-19 pandemic,
2. To identify how their value chains are being affected
3. To identify how the SMEs are dealing with Covid 19.

 

1.5 Significance of study

This report aims to be used as a helping guide for ICT small and medium scale businesses that are still dealing with the pandemic, or possibly similar future

pandemics. Lastly, the research found in this report could possibly contribute to literature that will emerge from the Covid-19 pandemic.

Overall, this research contributes to the understanding of the economic impact of COVID- 19 on the small business ecosystem. The fate of the 48% of workers who work in small businesses is closely tied to the resilience of the small business ecosystem to the massive economic disruption caused by the pandemic.

Delimitations

This study limits itself to only focus on the effects of Covid-19 on ICT small and medium scale businesses that sell   products in Kaduna North LGA. It will not explore the effects of Covid-19 on traditional or offline firms, since the empirical data would then have to focus on only enterprises.

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