COVID-19 AND A NEW VECTOR OF DEVELOPMENT FOR SMALL BUSINESSES

COVID–19 AND A NEW VECTOR OF DEVELOPMENT FOR SMALL BUSINESSES

Ramila Aliyeva Valid

PhD in Economics, lecturer of the Department State regulation of the Economy, The Academy of Public Administration  under the President of the Republic of Azerbaijan,

Azerbaijan, Baku

A business is any type of activity that brings income or other personal benefits. With the development of entrepreneurial activity, work becomes stronger, takes different types and forms, but always the basis of work is small enterprises. Small businesses are flexible and maneuverable; easily adapt to market conditions and changes in production, respond quickly to consumer requirements, quickly master new technologies, new products and services; are located close to the consumer.

The development of a small economy contributes to the formation of a competitive environment; the prevalence of most small businesses, the economy is vulnerable to the implementation of scientific and technological achievements. In addition, more rational use of labor resources is achieved in small enterprises and provides some solution to the problem of employment in small economies, especially in small and medium sized cities.

Small businesses, which often emerge in a short period of time to meet urgent needs and produce components, are very diverse and should be classified according to the following criteria:

1. Small enterprises may be based on private, cooperative, municipal, mixed and other forms of ownership. These can be established in the form of business partnerships, limited liability companies, production cooperatives and municipal unitary enterprises.

2. According to the method of creation, small enterprises are divided into newly created and formed ones, separating one unit from the existing one. An important point is the opportunity to create a small firm on the basis of mixed ownership with the participation of several builders.

3. Small firms can be divided into three groups according to their level of income and degree of commercial success.

The first group consists of enterprises without employees and living on their own. The second group is usually represented by small entrepreneurs with hired labor. Their relative economic stability is explained by the fact that many of them operate as subsidiary and additional specialized enterprises operating on the basis of subcontracts with large enterprises. The third group is represented by the owners of low-income enterprises (10 – 15 % of the total number), which are dominated by firms and office owners who specialize in providing professional services [4, p. 190 – 194; 5].

Small companies and large enterprises are available in several forms of interaction. Among them are the following forms:

1) A subcontracting system in which a small firm specializes in the production of individual parts, assemblies, and other small scale products supplied by a corporation. Small firms are strongly dependent on parent companies for production, trade, and financial dependence - beyond that, the chances of organizing production and escaping competition are highly questionable. In the United States, more than 50 % of small businesses in the engineering and metalworking industries have subcontracts. The subcontracting system is even more widespread in Japan.

2) A franchise system is a mixture of large and small businesses in which a larger firm enters into a contract with a smaller company and provides equipment, materials, technology, and branding, provided that the subsidiary operates only in the form and conditions specified by the parent company. This form is represented by a system of dealers, sellers of products of large companies. Owners of companies operating under the franchising system are given benefits such as price discounts, assistance in the delivery of goods and equipment, loans and more. This system in the United States (2010) accounted for 909,253 enterprises or 4.4% of the private sector in the United States, producing goods or services worth $ 880.900 million. The annual production of franchisees is $ 2.31 trillion, which is 11.4% of the annual production of the US private sector. Franchise companies in the United States provide more than 11 million jobs, or 8.1% of the national private sector workforce. [7].

There are three types of firms in the franchising system:

1) Firms operating only under the system of agreements – are obliged to sell all their products to the parent company.

2) Firms where a large supplier defines many aspects of production and trading activities.

3) Leased enterprises – the activities of these companies are fully regulated.

The first stage: the process of realization or commercialization of the discovery. In general, this stage is overlooked by other firms, and most small businesses are completed at this stage. Over the last decade, new organizational forms have emerged that significantly support and accelerate the process of application and commercialization of discoveries:

- Technology parks that play the role of a common “roof” for many independent innovative companies. There are 150 technology parks in the United States alone, including Silicon Valley, which is home to more than 3,000 small and medium-sized electronics companies and more than 200,000 employees;

- Venture capital – a financing system that reduces the risk for investors to invest in leading companies, which provides access to investments in leading. Each year, American venture capital funds provide at least $ 36 billion to local entrepreneurs.

The second stage: rapid development and production growth in commercially successful enterprises.

The third stage: the increase in production becomes significant, and innovation fully proves its value.

The fourth stage: transformation into a large company. A small number of advanced companies that pass all the tests reach the fourth stage of development and become large, specialized firms or even violent companies. Thus, scientific and technical progress in the development of small innovative firms plays a crucial role in society [4, p. 193-194].

In 2020, the whole world will face a new global crisis, and the resulting political, economic and social upheavals have revealed the shortcomings of the modern economic system. The coronavirus pandemic, known as COVID-19, has spread rapidly around the world, causing a global economic recession and decline.

Small business is an important part of the economic development of any country, but it is the area most affected by environmental factors under the influence of the unstable economic situation of the current period, which manifests itself most dramatically in the spread of this pandemic and is sensitive to unforeseen events, not only in the economy, but in virtually all areas of life. In the first wave of COVID–19, it was small businesses that suffered the most due to the introduction of self-isolation and quarantine regimes, having experienced a sharp drop in demand.

Despite global efforts to combat the virus, it continues to spread, which has expanded its acceptance from a medical crisis to a business crisis.

In the first wave of COVID-19, small businesses suffered the most due to self-isolation and the introduction of quarantine regimes with a sharp decline in demand. The most affected area of business is the service sector.

At the same time, the pandemic has allowed small businesses to change business processes significantly. Thus, there was an increase in e-commerce - from January to April 2020, the volume of this market increased by 27 % (for comparison, the growth for 2019 was 16 %). Analysts also expect the e-commerce market to grow by 169 % from November 2020, driven by buyers who do not shop online or rarely shop online.

According to Accenture, by November 2020, 54 % of buyers will use contactless payment (87% will do so in the near future), 54 % will order through the application (84 % in the future), 47% uses home delivery (82 % in the future), 44 % buys through social networks (80 % in the future) – which significantly affects how small businesses adapt to new economic realities.

Another feature was that the provinces and local governments (and, of course, the health care system) faced a pandemic crisis without any resources and time to adequately prepare.

The world state’s elites find themselves at a historic crossroads on which the process of economic recovery will depend and face the task of returning the economy to a trajectory of sustainable growth.

A large proportion of the world crisis, was not ready for it, even after nearly a year COVID-19 pandemic caused by the local, separate crises restoration (removing) do not have any suggestions for effective strategies. The main way to survive the COVID-19 crises was technological adaptation (primarily online solutions) allowing to combine the interests of all participants (customers, suppliers, employees, investors) in business models to be confirmed by the results of a survey showing the gap between small businesses that retain traditional strategies and those that choose digital transformation or are involved in digital business (e.g. restaurants that have partnered with logistics companies for delivery services) [2, p. 54-65].

COVID-19 crises inevitably will be forced to adapt to new challenges in the world of the pandemic and the companies associated with the emergence of new forms of economic policy.

There are three main areas for future economic growth, reduce inequality and social mobility in order to improve economic policy to pursue new sources of economic growth will define new targets for economic performance.

Revaluation of economic policies to reduce inequality and improve social mobility. Social inequality has been on the rise over the past few years, partly because technological advances have created a dividing line between highly skilled and low-skilled workers. Widespread digitization and globalization is increasing inequality between rich and poor countries. In such a situation, the pandemic creates a unique opportunity for long-term systemic change that can stop growing social inequalities and focus on measures to improve social mobility. Improving social protection and supporting socio-economic mobility in the new economy will be equally important to protect against future shocks.

Identify new sources of economic growth. The globalization of the international economy in recent decades has been one of the most important aspects of unification. However, when the COVID-19 crises began, international trade relations were already strained by a series of political turmoil, such as trade disputes between the United States and China, and the COVID-19 crises exacerbated the situation.

The COVID-19 crises is expected to have a strong impact on two important factors of long-term economic progress: innovation and global integration. Economic innovation has never been more important, especially for climate change control. More efficient use of resources by way of a comprehensive and sustainable economic growth, unprecedented public and private debt will be important to cope with the load. The crisis could also cause long-term damage to trade between rich and poor countries, as large companies entering the international market will return value chains to their countries, making it harder for poor countries to finance. This threatens international integration between countries with high and low GDP levels [2, p. 54-65].

In the second decade of the 21st century, a new modern goal in the field of planning and management of state development was formed, and it was not inclusive development. Inclusive development is a way to manage economic, social and environmental processes that ensure the comprehensive development of the state and the positive results of which are material for every citizen of the country [1, p. 10].

Finding new targets for economic indicators. The severity of the crisis has forced world leaders to rethink their value systems. When leaders in the public and private sectors develop plans for the transition to a “green”, more comprehensive economic system, a clear and consistent definition of goals will be critical for assessing the development of both public and private firms [1, p. 100-101]. In recent years, attempts have been made to identify relevant environmental, social and managerial performance indicators to measure aspects of welfare (outside GDP), which are important for effective performance.

Despite the efforts to introduce alternative indicators of economic activity, GDP growth still remains the main objective of economic policy and as an indicator of success seems to be enough. After the onset of the COVID-19 crises, they immediately began to predict that the economic recovery would be in the form of V, U or L. It will not be enough to understand the economic and social changes that will lead to GDP growth in the future alone.

Every company has a role in the transition to a new economic system. This will require at least some consideration of the company’s performance and efficiency. Recent experience has shown that employees, suppliers and customers as well, taking into account the interests of the shareholders of the companies have a better chance to withstand crisis.

The economic consequences of coronavirus require that corporate leaders act in multiple directions at the same time that is, meeting the needs of employees, ensuring job stability, continuous analysis of changing work and social contexts, and preparing the company for successful employment in the new reality.

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