Project Proposal Assignment: Impact of Recession on SMEs

Impact of Recession on SMEs
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Institutional Affiliation
Table of Contents
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Introduction  PAGEREF _Toc462601669 \h
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Research Questions  PAGEREF _Toc462601670 \h
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Problem Statement  PAGEREF _Toc462601671 \h
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Research Aim and Objectives  PAGEREF _Toc462601672 \h
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Justification of the Project (Literature Review)  PAGEREF _Toc462601673 \h
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Potential Research Output  PAGEREF _Toc462601674 \h
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Conceptual Framework  PAGEREF _Toc462601675 \h
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Methodology  PAGEREF _Toc462601676 \h
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Organization of the Study: Williams-Sonoma, Inc  PAGEREF _Toc462601677 \h
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Project Budget And Budget Justification  PAGEREF _Toc462601678 \h
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References  PAGEREF _Toc462601679 \h
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Appendix  PAGEREF _Toc462601680 \h
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Impact of Recession on SMEs
Introduction
According to Roxana (2009), Global Financial Crisis (GFC) has consistently revealed profound effects on all the sectors in the economy since the year 2008. Substantial effects have been felt on the SMEs, as they have limited resources, inclusive of capital compared to large firms (Ng & Wright, 2013). During the recession, the demand falls and clients are prone to postpone payments. Sellers experience a less probability of selling on credit, while both investors and banks become more conservative during the global and domestic market shrink. SMEs experience weak economic structures as a result of inadequate financial resources. Owing to their small size, SMEs find it very challenging to diversify or downsize economic activities (Beck, Demirgüç-Kunt, & Martinez Peria, 2016). SMEs find it challenging to survive the hardships. The situation necessitates the examination of the means in which global financial crisis (GFC) affects medium and small businesses. The actions by the government are also of the essence in the study.
The growth and survival of SMEs are necessary for global economies. The growth of SMEs leads to the creation of employment opportunities and improves the regional and national well-being of the economy. In the United States, employees in SMEs accounts for 50% of private sector labor. The industry substantially contributes to the Gross Domestic Product (GDP) of the US. The government has often designed policy measures, with the intention of improving SMEs’ environment.
Research Questions
RQ1: What ways were the effects of the recession on SMEs and how severe were the outcomes? Clearly, the GFC had a substantial impact on SMEs’ markets and financing. How serious were the consequences? The project is deemed to detail the impact of SMEs and GFC.
RQ2: How do the governments respond to the SMEs’ needs? SMEs are crucial to economic success. Thus, the government should assist in understanding the financial crisis. The project will outline some policy measures of the US government to solve the problems during the Global Financial Crisis.
RQ3: How have the goals of policy action by the government with regards to SMEs explored the extent of the gap between remedial and needed measures?
Problem Statement
Recession stands for a phenomenon of reducing demand for services, products, and raw materials. The initiation, continuation, and termination of the event solely depends on operational measures by Federal agencies and researchers. Reduced demand results to a limited market and hence, a reduced market share, reduced housing market, a cut in retail sales, stagnant remuneration rates, and increased unemployment rates (Fraser, 2004). SMEs have weak financial structures with limited financing options, and they heavily depend on credit. An extended period of global recession is referred to as an economic depression. The Great Recession happened in the period 2007-2009 (Robertson, 2010). Larger organizations resiliently survived the experience, while small and medium were adversely affected. SMEs contribute more on the total employment growth, thus the experience reduced the rate of employment and worsened the state of the global economy (Rey, 2015).
SMEs encountered an enormous loss in employment, as there were sharper cuts in the rates of gross jobs gain. Consequently, the rate of business creation was low and a reduced rate of hiring among the expanding small businesses. In the period 2007 to 2012, there were an excessive loss of jobs, which doubled the 30% of the overall unemployment. Jobs at SMEs recorded a loss of 11% and a further cut in the payroll of up to 7% (Cadena & Kovak, 2016). SMEs experienced disproportions during the economic downturns due to the reduced suppliers’ capacity, greater dependence on a few customers, limited financial resources, and technological shortcomings. The businesses also faced limited managerial and human abilities, cutting their capacity to fit the financial crisis (Reinhart & Rogoff, 2011).
Such cases necessitate the imperative to understand and analyze the negatives of the SME’s. The study looks forward to examining the government and market strategies, new concepts and innovative tactics adopted by SMEs to survive the recession.
Research Aim and Objectives
Elaborate the effect of the recession on SMEs’ activities and performances.
Broaden the understanding of how Recessions design the market positioning of SME’s innovations, operations, and returns.
Elaborate the role of policy makers and the government in controlling SMEs’ industry and the steps in solving the economic issue within the industry.
Set a precise definition to startups of the industry and the environmental challenges.
Set clear definitions of the role of the government in policy making.
Provide information to business managers that are useful in making both long-term and short-term business decisions.
Justification of the Project (Literature Review)
According to Roxana (2009), SMEs play an essential role in economic improvement by creating many job opportunities and spurring innovation for a substantial proportion of the national GDP. A 2004 statistics from Canada reported the great impediment to SME’s growth at taxation level, where 47% reported the issue. 38% reported taxation as a significant cause of low profitability, and rated the problem as severe (Roxana, 2009). The business owners also reported the ability to find qualified labor, government regulations, insurance rates and consumer instability as barriers to growth, with only a third reporting every of the issue as severe as illustrated in figure 1.
The problems were not only for the Canadian enterprises. In other nations, SMEs faced such problems, including institutional environment, financial constraints, financial restrictions and the institutional environment (Organization for Economic Co-operation and Development, 2009). Following the motives, the government has initiated some initiatives and programs to help with growth, formation and survival of SMEs (Baker, Bloom, & Davis, 2016). Some of the programs include tax reduction initiatives that aim at expanding the market, reducing social security expenses and controlling the labor market. The guarantee programs readdress financing difficulties (Organization for Economic Co-operation and Development, 2009).
Potential Research Output
The potential research outcome is that GFC has severe effects on SMEs. Small firms find it difficult to downsize during a financial catastrophe due to weak economic structures (Fraser, 2004). The firms have less financial options and lower credit ratings. However, most of the SMEs still depend on credit (Furlanetto & Groshenny, 2016).
The effects of the GFC on SME are expected to come from the product market. For instance, the collapse of housing market virtual in the US resulted in a worldwide impact on the sector. The situation leads to weak demand for construction materials and services, resulting in a shortage in demand for energy and commodities (Berger, Rosen, & Udell, 2007). The resulting outcome is a ripple influence in the auto industry and the sale of a new automobile. The waves in the market have resulted in many SMEs going bankrupt, hence dramatically reducing the international business (Beck, Demirgüç-Kunt, & Martinez Peria, 2016). That is; there was a decrease in demand for services and products, with considerable variations in inflation and exchange rates.
Further, owing to GFC’s chain effects, SMEs faced a decline in liquidity and working capital. The situation resulted from increased unsold inventory and delay in receivable. The findings are expected to reveal GFC to lead to constriction in working capital, which is supported by the expected bankruptcies, insolvencies, and defaults report (Grigor′ev & Salikhov, 2009). According to Organization for Economic Co-operation and Development (2009), 43% of Belgium SMEs surveyed experienced an extensive delay in repayment of receivables, and 50% of the Netherlands experienced longer debtors’ terms from their consumers (Robertson, 2010). In New Zealand, SMEs’ the level of waiting period has drastically extended to above 60 days, increasing the rate from 4.8% to 29.5% in the period February 2007 to 2008. Lastly, Sweden reported an above 50% of bankruptcies by February 2009 as compared to 2008 (Edey, 2009).
Further, there is an expected report on financial capital scarcity. Although banking has no funds limitation during scarcity period, the organizations tend to charge higher borrowing rates, making it expensive for the firms. Other times, banks charge higher rates to compensate the high costs im...