The Sufi mystic, Rumi, says: ‘Sometimes the scale pans may weigh correctly, but the balancer is off.’ Prior to COVID-19, people managed to find the right shoe in the dark. So they left behind the off-balancers and shopped instead on Amazon. Before Bezos, friction across supply chains served only to increase costs. So Bezos built Amazon inside the margins and left chairmen clinging to their ratios. The result is more customers shopping friction free. Bezos’ $280-billion-in-sales tech behemoth responds with the nimbleness of a startup. Perfectly configured to capitalize on disruptions like COVID-19. The model is flat, ultra-thin and light.
Amazon embraced COVID-19 as a disruptive event and ramped up operations to meet the surge. Petrified by a virus that left its natural quarantine in the rainforest, families huddled and turned to Amazon for essentials. To bolster its response, Amazon vetted and hired 175,000 extra workers. The agile response paid off. By March, Amazon brought in $75.4 billion in revenue—a 26% gain over 2019.
Sales at Amazon Web Services (AWS), Amazon’s cloud-computing business, that offers infrastructure technologies like compute, Intelligent Tiering for data storage, machine learning, data lakes, analytics, and the Internet of Things crossed $10 billion in a quarter for the first time, as customers like streaming entertainment giant Netflix, videoconference sensation Zoom, and workplace-collaboration tool Slack experienced swells in usage. AWS makes it faster and more cost effective to host existing applications in the cloud and build nearly anything you can imagine.
Through early May, Amazon’s stock was up 25% for the year, and the net worth of Bezos, already the world’s wealthiest person, had surged to $144 billion—a leap of $29 billion in a matter of months. Amazon changed work, leisure and retail forever. When it comes to SMEs, Amazon has created businesses, side hustles, development and content design opportunities for countless SMEs.
Amazon created a dedicated site for people to buy from small businesses and another platform to help emerging entrepreneurs become partners and merchants. Countless consultants, technology companies, logistics firms, warehousing landlords and other small businesses have created their livelihoods on Amazon’s platforms. These SMEs are selling to customers they could never dream of reaching and sourcing products from suppliers in far-flung places on earth, and doing all of this from the comfort of their homes or spaces that cost a lot less than rent on Bond Street. Likewise, e-commerce applications that allow small businesses to sell from their own websites such as Shopify, BigCommerce and Magento have exploded in popularity. Etsy and Alibaba are marketplaces that have attracted countless SMEs.
The COVID-19 crisis has exposed creeping financial frailties that have widened. It has also inserted new ones which will shape the next normal with additional burdens. Mitigation and adaptation are indispensable to survival. SMEs play an important role in every economy. They outnumber large firms, employ many people and are generally entrepreneurial in nature, helping to shape innovation. To thrive in the next normal, they will need to make extreme changes to business and operating models.
The broad themes include: protecting the health and safety of workers and customers, reinventing business models, investing in talent and technology, and adjusting staffing models and labour practices. Many SMEs came into the COVID-19 crisis with low financial resilience. One third was operating at a loss or breaking even and their balance sheets lack flexibility as most of their costs are fixed. SMEs also lack market power to renegotiate occupancy costs and less flexibility in managing the material amount of cash barricaded in inventory.
To keep them afloat, it will take collaboration across the economy, legislative reform to hibernate some and statutory shields to protect others from predatory pricing and other tactics that can erode market share. Some combination of public and private financial and technical aid may also be necessary that will allow them to compete with larger companies that can build contactless solutions at scale.
After the 2008 financial crisis, large companies recovered to their pre- crisis contribution to GDP in an average of four years. Smaller companies took an average of six. How long recovery will take in this instance depends on both country specific economic vulnerabilities to COVID-19 and the prevailing macroeconomic outlook for industries in that economy. The most affected sectors may take over five years to return to 2019-level contributions to GDP. Among SMEs, recovery is likely to take even longer. Many may never reopen.
Technology service providers can offer free online-advertising credit. Aggregators might help by offering additional onboarding support or spotlighting SMEs on their platforms. Large manufacturers may find that they are well positioned to provide demand guarantees to smaller companies, assist in technology and productivity diffusion, and bail-ins. Large companies often depend on SMEs as lower-tier suppliers, so financial fragility constitutes a longer-term supply-chain risk for large manufacturers. Muted demand, new customer expectations, and operational challenges stemming from new health and safety restrictions present SMEs with a bundle of recovery hurdles. One thread that runs through all of the challenges is that SMEs seldom have the capital to invest in these solutions. Protection is therefore prime.