IMPACT OF
RECESSION ON
SMALL AND MEDIUM
ENTERPRISES (SMEs)
BUSN20016: RESEARCH IN
BUSINESS
RESEARCH PROPOSAL
A Research Proposal submitted to the School of
Business and Law, in fulfilment of the
requirements of BUSN20016 (RESEARCH IN
BUSINESS) for the degree of Master of
Management for Engineers
AA BB CC
STUDENT ID: *****
June 2015
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CONTENTS
SECTION I ............................................................................................................................... 2
INTRODUCTION ................................................................................................................ 2
PROBLEM STATEMENT ................................................................................................... 3
RESEARCH OBJECTIVES/QUESTIONS .......................................................................... 4
JUSTIFICATION OF THE PROJECT ................................................................................. 5
EXPECTED RESEARCH OUTPUT/OUTCOME............................................................... 6
SECTION II ............................................................................................................................. 7
CONCEPTUAL FRAMEWORK AND RESEARCH HYPOTHESIS ................................ 7
METHODOLOGY ............................................................................................................. 11
SECTION III .......................................................................................................................... 13
ORGANISATION OF THE STUDY ................................................................................. 13
GANTT CHART ................................................................................................................ 14
PROJECT BUDGET AND BUDGET JUSTIFICATION ................................................. 15
REFERENCES ........................................................................................................................ 16
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SECTION I
INTRODUCTION
Small and Medium Enterprises (SME’s) are the major contributors to the economy of many
countries and within the European Union (EU) itself, they produce a turnover of 50 million
euros (Lin & Ma, 2010). They are an important part of most western countries accounting for
two-thirds of all employment but, when Recession occurs, they face a lot of difficulties and
there are many factors that have to be considered that influence their survival (Lin & Ma, 2010;
Nanto, 2009). The “Great Recession” of 2007 was sparked by the collapse of the U.S housing
market which led many financial institutions and banks to become bankrupt and ultimately
resulted in the overall decline of the U.S economy that forced many companies to run out of
business (Athanasiu, 2010).
The growth of SME’s spark an economy. When SME’s grow, jobs are created, unemployment
rates drop and the overall economy improves (Sharples, 2011). There is an understandable
connection between the struggles of SME’s and unemployment rates in many countries,
more so, in the year 2007 (the “Great Depression” period) (Sharples, 2011). SME’s are the
most sensitive sector and worst affected by the economic recession reducing the development
rate and increasing the number of bankruptcies with start-ups in particular being the most
vulnerable, lacking the resources to survive the downturn (Hodorogel, 2009). Consequently, if
proper research is conducted in this area, it would be beneficial to all the SME’s in the world.
The purpose of this assignment is to undertake a complete research proposal in the field of
Recession and the impacts/issues faced by SME’s so that they can safeguard themselves
against Recession and be better prepared whenever Recession occurs. The research proposal
is centered on how Recession affected all kinds of businesses, particularly SME’s, who were
the worst hit and what strategic adaptions SME’s adopted to overcome and survive it.
The organisation of this assignment is as follows. This Introduction forms Section I of this
research proposal. This is followed by the Problem Statement, Research Objectives,
Justification of the proposed proposal and the expected outcomes which also fall under Section
I. Then, Section II comprises Conceptual Framework, Research Hypothesis and Methodology.
Finally, Section III comprises Organisation of the Study, Gantt chart and the Budget required
to carry out the proposal.
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PROBLEM STATEMENT
Recession is a phenomenon of decreasing demand for raw materials, products and services and
its beginning, progress and ending depends on the operational measures used by different
researchers and federal agencies (Shama, 1993). It leads to a drop in share market, an increase
in unemployment, stagnant wages, a fall in retail sales and a decline in the housing market
(Amadeo, 2015). If a recession lasts longer, it can be classified as economic depression. There
were worldwide recessions during the years 2007 – 2009 (“The Great Recession”). Large
business companies were a bit resilient during this time with government subsidy and grants
but, smaller companies which contribute more to the overall employment growth were badly
affected (Nanto, 2009).
Smaller businesses suffered huge net employment losses due to sharper cuts in the rate of gross
job gains which in turn reflected on slower business creation and a lower rate of hiring among
expanding small businesses (Laderman, 2013). Between 2007 and 2012, small businesses
experienced disproportionate job losses wherein their overall job losses was double their 30%
share of total employment. Also, jobs at small businesses declined about 11% and the payrolls
at businesses that had 50 or more employees declined further by 7% (Laderman, 2013). SME’s
suffered disproportionately during such economic downturns because of their limited
financial resources, their relative shortcomings in technological, managerial and human
capabilities and their greater dependence on fewer customers and suppliers which readily
reduced their capacity to overcome the economic crisis (Bourletidis & Triantafyllopoulos,
2014).
In such a scenario, it becomes imperative to analyse and understand what went wrong for
these SME’s and this study will fill that gap with empirical evidence of the losses/impacts
suffered by the small firms during the period of recession. Also, the marketing strategies,
innovative tactics and new concepts adopted by them in order to survive the Recession will
be researched upon. This is done so that the future SME’s can take preventive measures and
be proactive if at all Recession occurs in the future.
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RESEARCH OBJECTIVES/QUESTIONS
The overall aim of this project is to investigate the Recession-related effects on small firms,
their responses to tackle that (i.e. their strategies) and the resulting impact on the performance
of the firm. More specifically, this study aims to answer the following research questions:
RQ1: How did recession affect the SMEs?
RQ2: What were the impacts suffered by SMEs as a result of Recession?
RQ3: How did the SMEs respond to the Recession conditions?
RQ4: What are the factors that drive the SMEs performance under Recession
conditions?
These questions will help answer the most important aim of this project: providing the best
options/schemes that any SME can follow in order to survive economic downturns.
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JUSTIFICATION OF THE PROJECT
Recession has been a period of intensive soul searching in which longstanding business models
had come under scrutiny (Sharma, et al., 2011). Also, the fact that Recession had affected the
world’s economy including a majority of countries like USA, UK, Canada, Japan, Australia,
China, New Zealand and India is a serious case to consider. The world’s greatest banks
suffered losses and unemployment rates were at an all-time high during the period of 2007-
2009 and countries like Greece and Iceland declared bankruptcy (Sharma, et al., 2011). This
proposal will be undertaken with the help of extensive literature review and feedback from
SME managers and owners (through surveys and questionnaires). Their feedback will provide
specifics on the strategies they adopted to stay afloat during Recession which will be quite
utilitarian for all the SME’s in the world.
Under these circumstances, the following are the benefits of conducting this research
proposal:
It will help those who wish to understand how Recession influences SME’s activities
and performance. Also, they must also take into account the mechanisms through
which Recession conditions exert an influence.
This research proposal will also help broaden the understanding of how Recession
conditions shape a SME’s business activity and performance.
SME managers can make use of the strategies presented in this research to fight
Recession where in this research proposal will help them to identify the right focus
areas during and post-recession. But, there is no guarantee of a single ‘best method’
that can ensure a SME’s survival under economic downturns.
The results obtained from this research proposal will be of use to business owners,
researchers and policy makers.
This proposal will be extremely useful to new ventures/start-ups as they can
understand the causes, effects and impacts of Recession. This, in turn will help them be
better prepared and pro-active in case Recession occurs in the future.
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EXPECTED RESEARCH OUTPUT/OUTCOME
The outcomes of this study will provide an analytical framework for investigating the factors
affecting SME’s because of Recession which will ultimately help develop and analyse the
strategies used by them in order to survive the economic downturns. Though the response of
any business under Recession conditions might be highly variable, it will still help in
understanding and providing a wholesome picture about Recession and help comprehend the
factors that drove some SME’s to perform even under Recession conditions. Small business
adaptation and performance during such times depend upon many factors like the available
resources and external influences including product, labour and capital market conditions.
These factors will have an impact on the final outcome of this research. All the research
objectives/questions as identified in the proposal will be answered based on the data
collections, findings and analysis that will be carried out for the same. These research outputs
will be viewed as important academic work for the problem that has been identified for this
research proposal. Also, this research will benefit future owners of start-ups/new ventures
before they embark on their enterprise.
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SECTION II
CONCEPTUAL FRAMEWORK AND RESEARCH HYPOTHESIS
The financial crisis that commenced in 2007 and its aftermath popularly referred to as the
“Great Recession” was responsible for the destruction of nearly $20 trillion worth of financial
assets owned by U.S households alone and the unemployment rate rose from 4.7% to 10%
which led to a decline the global GDP by 2% and somewhere between 50 and 100 million
people around the world fell into extreme poverty due to the crisis (Goodwin, et al., 2013). The
crisis exposed the weaknesses in the financial systems worldwide and demonstrated how
interconnected and interdependent economies are today which posed vexing policy dilemmas
(Nanto, 2009). The economic impacts of the crisis include unemployment and the vicious
recessionary spiral, inequality, bank size and deregulation, misguided corporate incentive
structure and globalization (Goodwin, et al., 2013).
There have been several financial crises in the past ranging from the 1930’s Great Depression
to the early 1990’s Recession (Sharples, 2011). After every one of them, a speedy recovery had
been possible because of the SME’s which played a huge role in economic recovery by
accounting for one-third of net job growth (they helped created new job opportunities) (Brown
& Lundblad, 2009). Historically, there has been proof from previous recessions that SME’s
have helped usher in an era of tremendous prosperity by creating 3.8 million jobs after the
1990’s recession (Lee, 2009). But, it turns out that when the 2007 Recession did happen,
SME’s were the worst hit because of the following reasons (Sharma, et al., 2011):
More difficult to downsize as they are already small.
Individually less diversified in their economic activities.
Have a weaker financial structure.
Lower or no credit rating.
Heavily dependent on credit and have lesser financing options.
More vulnerable as they bear the brunt of the difficulties of the large firms.
Narrower base of customers and product lines across which to spread risk.
Less bargaining power with a variety of external actors that include customers,
suppliers and financial providers.
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Most SME’s suffer from demand shock and there had been a drop in demand for goods and
services and a tightening in credit terms for SMEs at a global level (Bourletidis &
Triantafyllopoulos, 2014). Relevant Literature articles, previous Recession-related experiences
along with numerous researchers have come up with several survival strategies but, more so
only in the last ten years because the impact of Recession had been much severe now than
before. Some of these strategies are ((Sharma, et al., 2011) and (Bourletidis &
Triantafyllopoulos, 2014)):
Following Lean Guidelines
Improving Vendor Support and Quality
Reducing Obsolescence
Networking and Sharing
Keeping Existing Customers Loyal
Improving Customer Communication
Improving Manufacturing Flexibility
Keeping Inventory Level to a Minimum
Making use of ICT
Avoiding Hasty Lay-Offs
Enhancing Overseas-Marketing Capabilities
Moving to Higher Value-added Products and Services
Product Reengineering Process
Emphasis to new customers with environmental worries
Price fixing in the periods of crisis
Suppliers – ‘Stock Procurement’
Information from Stakeholders
In the words of P. Drucker, “the small businesses represent the main catalyst of the economic
growth” (Milin, et al., 2012). To be qualified as an SME, there are two things that need to be
taken into account – the dimension of the business and the management unit (Milin, et al.,
2012). In spite of all the previous research conducted, there have been circumstances where
some SME’s have triumphed during the crisis and not many analyses have taken place to
determine how SME’s adapted to Recession conditions in the ways they do (Kitching, et al.,
2009). Even though SME’s lack in technology and knowledge levels, they can overcome it by
imitating other firms’ best practices which may help them sustain their sustainability and
counteract the negative effects of the crisis, thereby stabilizing the economy (Bourletidis &
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Triantafyllopoulos, 2014). There is empirical evidence that shows export-oriented SME’s are
better able to adjust to crises (Sato, 2000). The performance of a firm/business during the crisis
is relative to others with whom they compete for resources and markets and such strategies are
likely to be context-specific varying with sectoral and spatial setting (Kitching, et al., 2009).
There can be two set of views regarding how SME’s are affected by recession which are
‘vulnerability’ and ‘resilience’ views. SME’s are much likely to cease trading than larger
enterprises (Storey, 1994). When small firms try adjusting to external conditions, there was an
effect of time-lag which first affected sales, then profitability and finally their ability to
survive (Smallbone, et al., 2012). The performance of a business does not map onto the
business size in a simple and direct way as Recession impacts unevenly on industries, regions
and related businesses that shape the diversity of experience of recession and related business
responses (Smallbone, et al., 2012). The two view-sets put the focus on the adaptive capability
of small firms and therefore, it becomes important to explore a firm’s ability to respond to
changes in the external environment in order to retain competitive advantage (Smallbone, et
al., 2012). The following diagram (Figure 1) provides a conceptual framework to understand
the relation between the global financial crisis, effects of the crisis in different countries,
recession-related experiences of the firms and their performance (Smallbone, et al., 2012).
Figure 1: Conceptual Framework (Adapted from: (Smallbone, et al., 2012))
Effect of crisis in different countries: Inputs are based on:
• Size and Structure of the Economy
• Banking and Finance
• Global Financial Crisis
Recession Related Effects on Firms: Inputs are based on:
• Effect of crisis in different countries
• Firm Size and Sector
• Policy
Firms' Performance: Inputs are based on:
• Firm's Responses
• Firm Size and Sector
• Recession Related Effects on Firms
Firms' Performance: Output can be either:
• Firms' are Vulnerable
• Firms' are Resilient
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Figure 1 summarizes the key external influences on an SME’s business performance,
emphasising on the interaction between SME’s and their external environment and how this
triggers strategic adaptation in small firms (Smallbone, et al., 2012).
When a firm has to make responsible decisions during such crises, they need to manage the
trade-off between benefits and costs of short-term crisis reactions (Bourletidis &
Triantafyllopoulos, 2014).
Based on the problem statement and the research objectives, the following Research
Hypothesis’s can be proposed that would be tested in this study:
H (1): Null Hypothesis: Recession does not have any impact on SME’s.
H (2): Alternate Hypothesis: Recession does have an impact on SME’s.
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METHODOLOGY
The following methodologies will be undertaken in order to effectively analyse the aims of this
research proposal. They are:
Literature Review: An in–depth study and analysis of relevant literature and
information available from various sources which include Google scholar, Science
Direct and journal articles by various authors. A thematic content analysis of these
documents will be undertaken to examine the extent to which the repercussions
have/have not affected SME’s. (Sharples, 2011)
Data Series and Surveys/Questionnaires (Data Collection Methods):
Numerous information collected from series of data and surveys will be
scrutinized to give an idea about gross job flows (job gains and losses) during
the times of recession, decomposition of job creation and loss, balance-sheet
and income statement items, business and economic conditions and changes in
lending practices and the changes’ effect on the credit markets. (Sahin , et al.,
2011)
In addition to the above, questionnaires will be prepared and handed out to
SME’s in order to gauge how they reacted during Recession, what were the key
impacts felt by them and what strategies they undertook to overcome and
survive it. For example, respondents can be asked determine to what extent
their businesses had experienced recession-related effects. Eleven items can
be used to measure finance as well as non-finance related effects using a five-
point Likert scale (where 1 = ‘strong positive effect’ to 5 = ‘strong negative
effect’) where in finance related effects include late pay by customers, bad debts
or uncertainty over customer payments, level of cash at the bank, credit
periods/terms from the suppliers and the availability of bank loans or overdrafts
(Smallbone, et al., 2012). Whereas, non-finance related effects include transport
costs, costs of supplies, changing value of the relevant currency, energy costs,
level of staff motivation and ability to recruit staff (Smallbone, et al., 2012).
Observing Key Indicators of Recession: Examining critical information from the
National Bureau of Economic Research that focusses on the study and communication
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of economic conditions in the U.S.A. They have defined certain key indicators that help
measure recession well in advance so that businesses can develop defensive strategies
to counter the effects of recession before it finally hits. (Research, 2015)
Data Analysis Methods: There will be two methods used for data analysis i.e.
Qualitative and Quantitative. Qualitative analysis will make use of online forums and
surveys with financial advisors whereas Quantitative analysis will make use of figures,
pie charts, excel sheets, mathematical and statistical modelling available online and via
scholarly articles.
The techniques used for analysing quantitative data will be descriptive
statistics (obtaining the descriptive statistics for the mean, median, standard
deviation and distribution of the key variables to see how individual values
cluster around the mean) and hypothesis testing which will consider the
likelihood of Type I and Type II errors (which relate to whether the data
supports accepting or rejecting the hypothesis). Also, regression analysis will
be used to check, say for e.g., “To what extent does recession affect the
unemployment rate?”
For analysing qualitative data, concepts from literature will be used as a
source of help to establish the findings and relationships will be examined
based on the answers from online forums and surveys.
This research will consider a mixture of all the above methodologies in order to arrive at an
accurate solution for the problem as identified in the problem statement. From the in-depth
understanding of the literature review and the responses obtained through surveys and
questionnaires, in order to arrive at the relevant findings, the data will be arranged first, grouped
together based on various factors and categories (like recession-related effects, strategies
adopted, sample characteristics, profile data and multivariate analysis of factors influencing
business performance) which will then be analysed and presented.
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SECTION III
ORGANISATION OF THE STUDY
The organisation of the study is as follows:
Chapter One will be the Research Proposal as outlined in this assignment.
Chapter Two will describe the case study of Recession in-depth.
Chapter Three will include the details of methodology – literature review, data series
and surveys (data collection methods), observing key indicators of recession and data
analysis methods.
Chapter Four will report the Findings and Analysis of the proposed research.
Chapter Five will summarize the important findings and discuss their implications in
making SME’s better prepared to survive Recession (mainly focussing on key strategic
adoptions by SMEs for survival).
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GANTT CHART
The following table shows the timeline for the whole Project to be completed.
Task Name Start Day End Day Duration
(Days)
Project Proposal 17/03/2015 31/03/2015 14
Literature Review 01/04/2015 15/06/2015 76
Data Collection 16/06/2015 16/08/2015 60
Data Analysis 17/08/2015 17/09/2015 30
Final Report Submission 18/09/2015 18/10/2015 31
3/17
4/1
6/16
8/17
9/18
14
76
60
30
31
7/11/201427/12/201415/02/20156/04/201526/05/201515/07/20153/09/201523/10/201512/12/2015
Project Proposal
Literature Review
Data Collection
Data Analysis
Final Report Submission
MILESTONES AND DELIVERABLES
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PROJECT BUDGET AND BUDGET JUSTIFICATION
The budget for the proposed research is around $4000 in order to complete this project within
the time frame (18th September 2015) as given in the Gantt chart.
This budget has been specified for the following reasons:
The Literature Review to be undertaken requires the use of textbooks, journal articles
and online resources that are not free of cost. This will cost around $1000.
Data collection in the form of surveys and questionnaires include printing, travelling
and posting/mailing costs. If e-mail is used, there is a chance of it ending up in the
Junk Box section of the e-mail. And, it is better to approach the SME’s in person and
collect information regarding the impacts of Recession on them and their survival
tactics. In cases where travelling in person might be impossible, the use of posts can be
availed of. This will cost around $2000.
Also, in order to access charts/tables/government figures for Data Analysis, some of
the budget must be allocated for this purpose too. This will cost around $1000.
In summary,
Purpose Estimated Amount to be Spent
Literature Review $1000
Data Collection $2000
Data Analysis $1000
Total Budget Estimated $4000
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REFERENCES
Amadeo, K., 2015. Causes of Economic Recession. [Online]
Available at: http://useconomy.about.com/od/grossdomesticproduct/a/cause_recession.htm
[Accessed 5 June 2015].
Athanasiu, C., 2010. After the Crisis. Business Source Premier, Wednesday October, pp. 42-
45.
Bourletidis, K. & Triantafyllopoulos, Y., 2014. SMEs Survival in time of Crisis: Strategies,
Tactics and Commercial Success Stories. Procedia - Social and Behavioural Sciences,
CXLVIII(1), pp. 639-644.
Brown, G. W. & Lundblad, C., 2009. The U.S. Economic Crisis: Root Causes and the Road to
Recovery. Journal of Accountancy, CCVIII(4), pp. 42-49.
Goodwin, N. et al., 2013. The Financial Crisis and the Great Recession. In: J. Devine, ed.
Macroeconomics in Context. Massachusetts: Routledge, pp. 337-356.
Hodorogel, R. G., 2009. The Economic Crisis and its Effects on SMEs. Theoretical and
Applied Economics, V(1), pp. 79-88.
Kitching, J., Smallbone, D. & Xheneti, M., 2009. Have Small Businesses Beaten the
Recession?. Liverpool, Liverpool Vision.
Laderman, E., 2013. Small Businesses Hit Hard by Weak Job Gains. [Online]
Available at: http://www.frbsf.org/economic-research/publications/economic-
%20letter/2013/september/small-business-job-growth-employment-rate/
[Accessed 5 June 2015].
Lee, S. A., 2009. Guiding Your Small-Business Clients Through the Downturn Maze. Journal
of Financial Planning, XXII(5), pp. 24-29.
Lin, S. & Ma, Y., 2010. ‘Credit crunch’ and Small and Medium-sized Enterprises: Aspects
affecting survival. Journal of Financial Services Marketing, XIV(4), pp. 290-300.
Milin, I. A., Fruja, I., Milin, S. & Merce, I. I., 2012. The Impact of the Crisis on Small and
Medium Enterprises. Agricultural Management, XIV(1), pp. 499-506.
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Nanto, D. K., 2009. The Global Financial Crisis: Analysis and Policy Implications. Congressial
Research Service, I(1), pp. 1-89.
Research, 2015. Measure a Recession. [Online]
Available at: http://m.wikihow.com/Measure-a-Recession
[Accessed 5 June 2015].
Sahin , A., Kitao , S., Cororaton , A. & Laiu , S., 2011. Why Small Businesses Were Hit Harder
by the Recent Recession. Current Issues in Economics and Finance, XVII(4), pp. 1-7.
Sato, Y., 2000. How did the crisis affect small and mediumsized enterprises? From a field study
of the metal-working industry in Java. The Developing Economies,, XXXVIII(4), pp. 572-595.
Shama, A., 1993. Marketing Strategies During Recession: A comparison of small and large
firms. Journal of Small Business Management, I(1), pp. 62-72.
Sharma, D., Garg, S. K. & Sharma, C., 2011. Strategies for SMEs after Global Recession.
Global Business and Management Research: An International Journal, III(1), pp. 58-66.
Sharples, A., 2011. The Great Recession and its effect on small businesses and unemployment
rates, Carolina: Business Management and Marketing.
Smallbone, D., Deakins, D., Battisti, M. & Kitching, J., 2012. Small business responses to a
major economic downturn: Empirical perspectives from New Zealand and the United
Kingdom. International Small Business Journal, XXX(7), pp. 754-777.
Storey, D., 1994. Understanding the Small Business Sector. 1st ed. London: Routledge..
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