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Business resilience for micro, small and medium enterprises

The World Risk Report has ranked the Philippines as the third-riskiest among 171 countries worldwide when it comes to natural disasters. The report, as released by the United Nations, includes a World Risk Index that measures a country’s risk of being struck by natural disasters combined with man-made factors that make a country more vulnerable to natural disasters. The country has held this position for three years now.

Many countries are at risk of experiencing natural disasters. What sets countries apart, though, would be the man-made factors mentioned previously. The World Risk Index considers three components for these factors—coping, adaptation and susceptibility. Coping refers to the country’s preparedness and ability to respond effectively to disasters. Adaptation is the country’s ability to adjust and form long-term strategies for climate change. Lastly, susceptibility measures citizen’s socioeconomic conditions. The idea is that the higher the level of poverty, the more risk-prone to disaster a country is.

As applied to the Philippines, our country is in the Pacific ring of fire which makes it prone to earthquakes and volcanic eruptions. Due to this, the 7,000 islands that comprise the country become vulnerable to storm surges, landslides, tsunamis and flooding. This geographic vulnerability is further compounded by man-made factors like the absence of urban and regional plans to minimize, mitigate and mediate devastating results brought about by these hazards and disasters. 

Disasters affect the fabric of society. Businesses experience loses the same as individual households. Disasters can disrupt a business’ supply chain, damage equipment and affect its employees and customers. The effect of a disaster depends upon the size of the business and the level of its preparedness. It is found that micro, small and medium enterprises (MSMEs) are affected more compared to large enterprises as the latter have more resources that can be devoted to preparation and the latter also have access to more coping strategies such as financial institutions in the aftermath of a disaster.

This is particularly significant given the fact that a survey done in Taiwan indicates that 25 percent of MSMEs do not reopen following a major disaster. Although this research was not done in our country, it can give us an indication that MSMEs in Taiwan, which can be considered advanced in terms of the level of socioeconomic development compared to ours, do struggle to recover after such an event. How do you think our local MSMEs fare?

This topic is crucial considering that MSMEs in the Philippines comprise more than 99 percent of the total number of businesses in the country and contribute 65 percent of total employment. In the aftermath of a natural disaster, the prevailing expectation among MSMEs is that national and local governments would pour their resources on immediate relief and recovery efforts to affected individuals within communities but there, however, is an apparent lack of support for businesses to recover from disasters.

Given the above, we need to give due attention to MSMEs since they are more vulnerable to loses due to the small amount of capital that they operate with. According to the United Nations Development Program, MSMEs in developing countries have an added characteristic that makes them more vulnerable to disasters compared to their counterparts in the developed countries—informality. 

Informality has a lot of implications. For one, it limits the financing options available to MSMEs in the aftermath of a disaster. This also prevents MSMEs from obtaining insurance. In addition to this, it limits the capacity of MSMEs to diversify their supply and customer base. This also necessarily implies non-compliance with business regulations that further increases SMEs’ vulnerabilities.

Another factor that contributes to MSMEs increased vulnerability will be the cultural factors such as fatalism. A pilot study on the reactions of owners of MSMEs to natural disasters indicates that there is a certain element of fatalism as demonstrated by the “bahala na” attitude when it comes to disasters. In an interview done among four owners of MSMEs, two indicated that while they know that they can buy business insurance as a form of risk management, the entrepreneurs choose not to do so. The entrepreneurs indicated that they will deal with the disaster when it strikes. The two entrepreneurs interviewed do not view disaster preparedness as important.

To address this situation, the Department of Trade and Industry in collaboration with other partner agencies has launched the project “Strengthening the Disaster Resilience of Small and Medium Enterprises in Asia”. The objective of this project is to engage MSMEs on disaster risk management activities. More particularly, the project identifies actions to strengthen the resilience of micro, small and medium-sized enterprises; provides technical assistance in strengthening resilience to selected MSMEs on a demand-driven basis; supports the government in strengthening the enabling environment that promotes risk sensitive and informed investments by MSMEs; and facilitate knowledge sharing at the regional level.

While the country has a long way to go to in achieving business resilience, it is important to acknowledge that disaster risk management should be a collaborative effort. It does not matter which sector whether private or public spearheads the effort. The more important thing is that all stakeholders are involved in the effort given the multidimensional aspect of the problem.

Shieradel V. Jimenez is an assistant professorial lecturer at the Ramon V. Del Rosario College of Business of De La Salle University. She teaches Management of Organizations and Human Behavior in Organizations. Her research interests include business resilience and sustainability. She may be reached at [email protected] The views expressed above are the author’s and do not necessarily reflect the official position of DLSU, its faculty, and its administrators.

Topics: Green Light , World Risk Report , Business resilience , micro small and medium enterprises , MSMEs
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