Managing Under Recession: Perspectives from New Zealand Small Firms

Abstract

Does the global recession impact on all small firms in the same way? Are small firms vulnerable with regard to a downturn in the economy because of the their limited resources, customers and product range across which to spread their risk or are they resilient because of their flexibility to quickly adjust resource input, prices, processes and products? Recession conditions vary significantly, across industries, regions and even businesses. These differences are partly responsible for producing a range of SME experiences in relation to the economic conditions and subsequently, a variety of business responses to it. To understand the impact of the recession on small firms it is important to consider the particular environment firms operate in, the business owners’ responses to such events, and the different levels of performance their firms achieve. Against this background, this report investigates how New Zealand small firms have experienced the recession and how they adapted to the changing conditions. The questions on which this study is based formed part of BusinesSMEasure, a yearly longitudinal study of SMEs in New Zealand, targeted specifically to survey micro and small sized firms. The number of firms that completed the survey was 1539. Fifty-eight percent of these firms were micro (0 - 5 FTEs) 40 percent were small (6 - 49 FTEs) and two percent were medium (50 - 99 FTEs). About two thirds of the firms operated in the services sector while the remainder were from the manufacturing and primary sectors. Overall, results showed that firm performance was constantly deteriorating from 2007 to 2009 as a result of the global economic downturn. Not all firms were affected to the same extent, however. Some firms actually reported increased performance during the last 12 months: roughly one quarter of firms reported increased turnover (25 percent) and increased profitability (21 percent) and 13 percent of firms reported an increased number of employees. The majority of firms (52 percent) first felt the recession in 2009, yet about one out of four firms did not feel the recession at all. The firms who indicated that they did not feel the recession were significantly more likely to be rural based, to employ between 50 to 99 staff, to be a service provider and to have reported increased turnover and profitability within the last 12 months. The majority of firms (52 percent) first felt the recession in 2009, yet about one out of four firms did not feel the recession at all. The firms who indicated that they did not feel the recession were significantly more likely to be rural based, to employ between 50 to 99 staff, to be a service provider and to have reported increased turnover and profitability within the last 12 months. The most common ways that firms reported to cope with the recession were through introducing new or improved products, personally working longer hours and increasing sales effort. Firms who reported growth in turnover and profitability, however, were more likely to report investment related strategies compared to non-growth firms who were more likely to cut costs across a range of operations. More than one third of firms reported that they have not needed external finance since at least the start of 2008. These firms were more likely to be at the micro in size and to have not felt the effects of the recession. Firms who did use external finance were more likely to increase the use of existing sources of finance i.e. bank overdrafts, personal savings and bank loans.