Reaction of Small and Medium-Sized Enterprises to the Corona Crisis: the Impact of Regional Authorities
DOI:
https://doi.org/10.17059/ekon.reg.2022-3-3Keywords:
regional development, small and medium business, COVID-19 pandemic, economic crisis, regional authorities and business, government support, business resilience, digitalisation, business associations, post-crisis developmentAbstract
The decline in Russian business activity due to the Covid restrictions was much lower than forecasted by international financial institutions. Even the small and medium enterprises (SME) sector, which experienced a significant downturn, in 2021 demonstrated a recovery and intentions to conduct business. The present study aims to reveal the impact of regional authorities on the activity of small and medium-sized enterprises during the crisis, coupled with the entrepreneurs’ own efforts and economic freedom in the region. To this end, a case study of Sverdlovsk oblast, a large Russian region with a diversified industrial structure and a developed SME sector, was analysed. Both qualitative and quantitative research methods were utilised in the case study. Qualitative methods include semi-structured interviews with CEOs aimed at identifying deep motives of activity and diversity of business responses to external challenges. As for quantitative methods, the economic freedom index of the region for 2002-2020 was calculated using the Coates method, the relationship between entrepreneurial activity in Sverdlovsk oblast and government intervention in the regional economy was assessed based on the ordinary least squares regression. The study demonstrated that the number of individual entrepreneurs depends on the government participation in the regional economy, while the activity of legal entities is more related to economic freedom. During the crisis, demand reduction and change, real income decline, restrictions on cross-border transactions and a growing concentration of market power accelerated changes in companies’ business models in terms of interaction with consumers, value proposition, networking and digitalisation of business. Additionally, business associations involved in the interaction between companies and public authorities gained importance in this period.
References
Aidis, R., Estrin, S. & Mickiewicz, T. (2008). Institutions and entrepreneurship development in Russia: A comparative perspective. Journal of Business Venturing, 23, 656–672.
Aparicio, S., Urbano, D. & Odrech, D. (2016). Institutional factors, opportunity entrepreneurship and economic growth: panel data. Technological foresight and social change, 102, 45-61. DOI: 10.1016/j.techfore.2015.04.006.
Arnold, J. & Hussinger, K. (2010). Exports versus FDI in German Manufacturing: Firm Performance and Participation in International Markets. Review of International Economics, 18(4), 595–606. DOI: 10.1111/j.1467-9396.2010.00888.x.
Bach, N., Mickiewicz, T. & Du, J. (2017) Local Governance and Business Performance in Vietnam: The Transaction Costs Perspective. Regional Studies, 52(4), 1-16. DOI: 10.1080/00343404.2017.1341625$
Balbontin, C. & Hensher, D. A. (2018). Firm-specific and location-specific drivers of business location and relocation decisions. Transport Reviews, 39(5), 569-588. DOI: 10.1080/01441647.2018.1559254.
Barinova, V. A., Zemtsov, S. P. & Tsareva, Y. V. (2018). Entrepreneurship and institutions: Does the relationship exist at the regional level in Russia? Voprosy ekonomiki, 6, 92-116. (In Russ.)
Baumol, W. (1990). Entrepreneurship: productive, unproductive and destructive. The Journal of Political Economy, 98(5), 893–921.
Beck, T., Demirgüç-Kunt, A. & Maksimovic, V. (2008) Financing patterns around the world: Are small firms different? Journal of Financial Economics, 89, 467-487.
Beuselinck, C., Cao, L., Deloof, M. & Xia, X. (2017). The Value of Government Ownership during the Global Financial Crisis. Journal of Corporate Finance, 42, 481–493. DOI: 10.1016/j.jcorpfin.2015.05.002.
Bykova, A. & Coates, D. (2020). Firm performance and regional economic freedom: the case of Russia. Post-Soviet Affairs, 36(5-6), 395-415. DOI: 10.1080/1060586X.2020.1785239.
Coates, D., Mirkina, I. & Murty, V. (2017). The economic freedom of the Russian Federation. SSRN Journal. DOI: 10.2139/ssrn.2969722.
Djankov, S., Ganser, T., McLiesh, C., Ramalho, R. & Shleifer, A. (2010). The effect of corporate taxes on investment and entrepreneurship. American Economic Journal: Macroeconomics, 2(3), 31–64.
Dolgopyatova, T. G. (2012). Russian firms: business environment, internal organization and behavior. In: Russia e Europa dell’Est: Progetti e prospettive di crescite [Russia and Eastern Europe: Progress and Prospects of Development]. Research Series, No. 1 (preprint). University of Verona: Polo Scientifico Diddattico «Studi sull’ impresa» and Center for International Studies. Retrieved from: https://publications.hse.ru/preprints/55473813.
Dolgopyatova, T. G., Iwasaki, I. & Yakovlev, A. (2017). Introduction: Russian firms in comparative perspec- tive. Economic Systems, 41(March), 1-4.
Doner, R. & Schneider, R. F. (2000). Business associations and economic development: Why some associations contribute more than others. Business and politics, 2(3), 261-288. DOI: 10.2202/1469-3569.1011.
Du, J. & Mickiewicz, T. (2016) Subsidies, rent seeking and performance: Being young, small or private in China. Journal of Business Venturing, 31, 22-38.
Estrin, S., Korosteleva, J. & Mickiewicz, T. (2013) Which institutions encourage entrepreneurial growth aspirations? Journal of Business Venturing, 28, 564-580.
Fedyunina, A. A. & Yakovlev, A. A. (2021). Instead of the conclusion: a comparative analysis of the state and prospects for the development of industries of the Russian economy. In: T. G. Dolgopyatova, N. V. Akindinova, Y. V. Simachev, A. A. Yakovlev (Eds.), Otvet rossiyskogo biznesa na pandemiyu COVID-19 (na primere shesti otraslevykh keysov) [The Russian Business Response on the COVID-19 Pandemic (On the Base of six Branch Cases)] (Pp. 410-433). Moscow: Higher School of Economics. (In Russ.)
Goes, C. (2015). Institutions and Growth: The GMM/IV Panel VAR Approach. IMF Working Paper No. 15/174. DOI: 10.5089/9781513555508.001.
Gugler, K., Mueller, D. C.&Yurtoglu, B. (2003). The Impactof Corporate Governanceon Investment Returnsin Developed and Developing Countries. The Economic Journal, 113(491), 511–539. DOI: 10.1046/j.0013- 0133.2003.00167.x.
Heckelman, J. S. (2007). Explaining the rain: the rise and decline of nations 25 years later. Southern Economic Journal, 74(1), 18-33. DOI: 10.2307/20111950.
Johansson, B. (2000). Networking and entrepreneurial growth. In: D. L. Sexton, H. Lawrence (Eds.), Blackwell’s handbook of entrepreneurship (pp. 368-386). Oxford: Blackwell.
Kazun, A. P. (2015). Re-Examining the Role of Business Associations in Russia and Post-Communist Countries: From Interest Groups to Defensive Organizations. Ekonomicheskaya sotsiologiya [Journal of Economic Sociology], 16(3), 163-172. (In Russ.)
Khan, I., Ming, J., Ali, M. & Zhang, Z. (2020). The impact of government support on SME development: a case study of the Swat Valley. Journal of small business management, 58(1), 1-32. DOI: 10.1080/00472778.2020.1767487.
López-Bazo, E. & Motellón, E. (2017). Innovation, Heterogeneous Firms, and the Region: Evidence from Spain. Regional Studies, 52(5), 673–687. DOI: 10.1080/00343404.2017.1331296.
Miletkov, M., Poulsen, A. & Babajide Wintoki, M. (2017). Foreign Independent Directors and the Quality of Legal Institutions. Journal of International Business Studies, 48(2), 267–292. DOI: 10.1057/s41267-016-0033-0.
Morgan, S., McMahon, M. & Grayson, D. (2008). Balancing health goals and industrial policy in the pharmaceutical sector: lessons from Australia. Health Policy, 87(2), 133-145. DOI: 10.1016/j.healthpol.2008.01.003.
North, D. (2005). Understanding the Process of Economic Change. Princeton University Press, Princeton, 200. Obraztsova, O. I. & Chepurenko, A. Yu. (2020). Entrepreneurial activity in Russia and its cross-regional differences. Zhurnal Novoy ekonomicheskoy assotsiatsii [Journal of the New Economic Association], 2(46), 199-211. (In Russ.) Olson, M. (1965). The logic of collective action: Public goods and group theory. Cambridge, Massachusetts, 174.
Olson, M. (1982). The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Austerity. New Haven, 324.
Roper, S., Jun, D. & Love, J. H. (2008). Modelling the Innovation Value Chain. Research Policy, 37(6–7), 961–977. DOI: 10.1016/j.respol.2008.04.005.
Speth, R. (n.d.). Douglass C. North, Institutions, Institutional Change and Economic Performance, Cambridge 1990. Key Works in Political Science, 331-334. DOI: 10.1007/978-3-531-90400-9_88.
Veselov, Y. V. (2013). Institutional and network trust as economic categories. In: A. B. Kupreichenko, I. V. Mersyanova (Eds.), Doverie i nedoverie v usloviyakh razvitiya grazhdanskogo obshchestva [Trust and distrust in the conditions of civil society development] (pp. 263-289). Moscow: National Research University Higher School of Economics Publishing house. (In Russ.)
Yakovlev, A. A., Zudin, A. Y. & Golikova, V. V. (2011). Business associations and their role in the course of modernization of Russia. Obshchestvennye nauki i sovremennost [Social Sciences and Contemporary World], 3, 26-35. (In Russ.)
Zemtsov, S. P. & Baburin, V. L. (2019). Entrepreneurial ecosystems in the Russian regions. Regionalnye issledovaniya [Regional Studies], 2, 4-14. (In Russ.)
Zemtsov, S. P. & Mikhaylov, A. A. (2021). Trends and factors of development of small and medium-sized businesses in Russian regions during corona crisis. Ekonomicheskoe razvitie Rossii [Russian Economic Development], 28(4), 34-45. (In Russ.)
Zudin, A. Y. & Yakovlev, A. A. (2011). Indispensable or Marginal? The Sector of ‘Well-Functioning’ Business Associations in Russia (based on qualitative survey data). Mir Rossii [The Universe of Russia], 3, 95-124. (In Russ.)
