It has been more than nine months now since the COVID-19 pandemic spread from China in late 2019. This contagion is the world’s largest public health crisis in decades and has had an unprecedented, devastating effect on the global economy.
Thailand is no exception.
Even though the number of local infections and deaths has been held within a limited scope and the lockdowns have generally been eased, many businesses are still unable to resume their operations or are far from restoring their income to pre-COVID-19 levels. Even worse, a vast number of businesses – especially vulnerable SMEs – have folded due to their limited resources to withstand the crisis.
Most businesses are expected to face ongoing hardship for the remainder of this year and into the next. Challenges exist in the reemergence of COVID-19 as seen elsewhere, and most recently in our neighboring countries – an event that has stifled their economies, as evidenced by plummeting demand. For Thailand, it may be later rather than sooner that the country can emerge from the doldrums and return to normalcy or back to pre-COVID-19 conditions. The unpredictable domestic political issues also pose another risk to the Thai economy.
In the midst of numerous risks looming large, liquidity is the foremost challenge for businesses. As far as estimates go, businesses’ income is set to see an unprecedented slump. Nonetheless, the severity of the problem may vary depending on the type of business. To be more specific, SMEs in tourism and service sectors have been battered by the virus crisis, while businesses engaging in luxuries may witness shrinking income for a longer period than others. Meanwhile, those dealing with essential products – namely food, healthcare and medical supplies – will be more resilient.
Over the medium term, businesses will have to contend with intense competition amid meager demand. SMEs in particular must compete head-on with large operators which have shifted their focus to the domestic market in lieu of the plummeting export market. The influx of low-cost imported products into the Thai market makes things even more complicated. Meanwhile, the strengthening Baht has eroded competitive capabilities for export items in particular, due to intense price competition.
To efficiently tackle the challenges, maintaining liquidity for businesses must be the top priority. An effective plan must be formulated to maximize the existing cash flow available. If no avenue to increase income is in sight, focus must be on cutbacks for expenses such as marketing costs of ineffective media, while priority must instead be given to viable products or services. Do not apply equal effort to all product lines. Along with this, efficient inventory planning will be of great help in order to keep raw materials at an appropriate level. Technology application should also be embraced to minimize costs.
What’s more, cutting your debt burden or even refraining from creating more debt or seeking new investments is presently deemed crucial. This can assure that your business will have sufficient cash to cope with the potentially prolonged crisis. If debt cannot be avoided, don’t be exposed to excessive amounts. Given the fluid situation, it is unpredictable how quickly any new investment would pay off.
For cash-strapped businesses, converting assets to cash could be a way out. For instance, focus must be on inventory clearance or credit management for customers. To this end, discounts may be offered to customers who can make payment before the due date, to ensure sufficient cash inflow. Meanwhile, crisis-hit operators should enter into debt restructuring with their financial institutions to lighten their monthly expense burdens for improved management.[1]
Now may be the right time for business operators to review their undertakings to generate income. Instead of dwelling on existing markets that are not yet out of the woods, they should branch out into newer markets that have greater potential. At the same time, proactive marketing strategies must be prioritized, especially to navigate the ‘New Normal’ by facilitating consumer spending via the use of offline and online channels, introduction of delivery services and online payment systems, which most SME operators have not utilized.
For instance, export-related businesses should emphasize honing their competitive edge via distinctive product quality and innovation. To this end, focus should be on product safety with improved traceability to reduce health-related concerns, which will soften the impact of price competition. Concurrently, business owners should seek entryways into viable markets, especially penetrating the countries that have proven resilient to the COVID-19 pandemic and are showing signs of rapid recovery, like China. More importantly, foreign exchange risk management should be prioritized to diminish the effects of market volatility.
At this point, it is evident that the COVID-19 induced economic shock has presented a tremendous challenge for business management. Business operators must stay ahead of the game and respond in a timely manner to changes in the market. They also need to have a full grasp of incoming issues and be able to come up with solutions to weather the crisis.
Last but not least, the present situation may best be left in the hands of the authorities, which continues to play an important role in supporting businesses amid this COVID-19 crisis. There should be issuance and extension of relief measures that include diversifying income opportunities, boosting liquidity and offering relief for conditions of debt repayment at appropriate times. All of these measures should be able to assist SMEs, now at their most vulnerable – the group that is the foundation of the Thai economy, and one which represents 35.3 percent of overall GDP, comprising up to 3.1 million business owners and helping to create 12.1 million jobs (as of 2019) – in pulling through these challenging times.
[1] Bank of Thailand’s assistance measures for businesses affected by COVID-19 pandemic https://www.bot.or.th/covid19/Pages/default.aspx