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How have SMEs fared during the economic reactivation?

The main causes of failure include a lack of knowledge in the market, poor business management and problems in obtaining financing.

This article was translated from our Spanish edition using AI technologies. Errors may exist due to this process. Opinions expressed by Entrepreneur contributors are their own.

After an extremely challenging year for small and medium-sized companies ( SMEs ) due to the pandemic , the economic reactivation is gradually reaching these businesses. It is worth remembering the efforts that these businesses have made to continue operating, which is not surprising, since they are fundamental for the national economy, since they generate 72% of the formal jobs in the country.

“Although in 2021 some SMEs begin to see favorable numbers, getting here and keeping the largest number of jobs possible has not been easy at all, since according to estimates from the National Institute of Statistics and Geography (INEGI), 20.8% of these businesses closed their doors definitively ”,   Juana Ramírez, president of the Board of Directors of the Association of Entrepreneurs of Mexico (ASEM) shared with us.

However, progress in the national vaccination plan, the implementation of health prevention measures and the gradual opening of activities are creating a less unfavorable scenario for SMEs that managed to survive the toughest stage of confinement.

“It was not easy for any business to overcome the pandemic, but SMEs in particular had to make a series of significant modifications, from investing in digitization, training of all kinds, searching for new forms of financing or changes to the business model. All in order to continue operating. Many entrepreneurs were not alone and relied on the Association of Entrepreneurs of Mexico (ASEM) to develop or acquire new knowledge that helped them survive and grow their businesses ”, says Jorge Corral, executive director of ASEM.

According to data from ASEM, based on a study carried out in March 2020, 87% of SMEs estimated that they would lose sales, customers and new work projects. And although it is still too early to assess the impact of the economic reactivation for these businesses, the truth is that the growth prospects are encouraging.

According to the PwC Family Business Survey 2021 , 55% of these businesses expect favorable economic growth for this 2021; while 74% consider that their finances could improve until the following year.

Despite these perspectives, it should be noted that prior to the pandemic, SMEs already faced great challenges. According to ASEM's X-ray of Entrepreneurship 2020, among the main causes of failure of Mexican entrepreneurs are the lack of knowledge in the market, poor business management, lack of working capital and problems in obtaining financing.

In fact, ASEM reports that 90% of Mexican SMEs are financed with their own resources during the first three years of life and 85% continue to do so in subsequent years.

“These and other reasons led SMEs to become one of the most vulnerable sectors to the complexities of the market in the pandemic. However, little by little these businesses are taking advantage of new business opportunities and reversing their negative figures; that is, they are not only focusing on survival, but on growing, ”adds Jorge Corral.

Last May, INEGI carried out a study to evaluate the current condition of Mexican companies and found that while in April 2020 93.2% reported some level of affectation, by May 2021 this figure dropped to 85.5 percent.

Likewise, the confidence of SMEs about their growth is increasing and currently 57.8% say they are optimistic about the future of their business, mainly thanks to the fact that the contagion rate has decreased, government regulations allow greater openness and, above all, because digitization has played a crucial role for the continuity of these companies.

Digitize or die

One of the most momentous changes that the pandemic has left in SMEs is a greater adoption of digital tools to create more resilient and competitive businesses. According to information from Microsoft, in Mexico 83% of these companies consider that the adoption of new technologies has been key for the reactivation of their company both in the short and medium term.

Given this, ASEM has permanently worked on the creation and promotion of programs that serve entrepreneurs to implement digital tools that contribute to increasing the positioning and sales of their companies. One of them is the #FridayWhatsApp program, in which more than 12,000 entrepreneurs have been trained in the use of this tool. Its success has been such that it will spread to other countries globally.

“Thinking about the economic reactivation would not be possible without the support of digital tools such as free messaging platforms. These have the potential to help businesses communicate more efficiently with their customers and reach a large number of users, and they are also easy to use, ”says Corral.

In Mexico, 83% of these companies consider that the adoption of new technologies has been key to reactivation / Image:

What about financing?

Access to financing was very complex for SMEs during the first year of the pandemic. According to ASEM, at the end of the first quarter of last year, 31% of companies predicted they would have difficulties paying loans or credits and 40% indicated that they could face financial problems to comply with the payment of their taxes.

In addition to this, INEGI reports that the current situation of SMEs, although it has improved compared to the previous year, still presents important challenges, since more than 8% have had less access to financial services due to high interest rates, that providers are less willing to grant credits since the risk of not being able to pay debts is very high.

What do entrepreneurs need?

Entrepreneurs consulted by ASEM point out that it is essential to support SMEs in this stage of economic reactivation, among their main demands are:

  • Friendly schemes for the payment of taxes and employer employee fees
  • Encourage investment in high-impact ventures
  • Simplify procedures for the management of companies and reduce the tax burden in the first years.
  • Increase access to markets and funds for female entrepreneurs
  • Promote payment to suppliers in a maximum of 30 days, among others.

Finally, Juana Ramirez commented:

“The pandemic has been a huge challenge for the world and to face it we recognize 3 large groups that have become undeniable heroes: health professionals, women and entrepreneurs. The latter will be the leaders of the economic reactivation through the companies and their work teams, which will show us once again that entrepreneurs are capable of overcoming any obstacle inspired by their commitment to the economic and social development of Mexico ”.