Why do some firms survive a crisis and others don't?

February 6, 2018, Aston University
Why do some firms survive a crisis and others don't?
Credit: Aston University

An international study of small and medium-sized firms has been launched to find out why some are more resilient than others when a crisis hits, at both the level of the firm and in the wider economy.

Small and medium-sized businesses make up 99 per cent of all firms across Europe and provide around 70 per cent of employment.

During the financial crisis of 2007-08 the Federation of Small Business (FSB) estimated that up to 50 companies were closing every day in the UK, and yet many survived and there are now more SMEs than ever with the FSB calculating there were 5.7 million in the UK in 2017.

The two-year study, supported by the JPMorgan Chase Foundation, will involve surveying 3,000 SMEs – defined as firms with less than 250 employees – in London, Paris, Frankfurt, Milan and Madrid.

Researchers from Warwick Business School and Aston University at the Enterprise Research Centre (ERC) will lead the UK study, with academics at the University of Nice in France; the Institut für Mittelstandsforschung (IfM) Bonn in Germany; University of Padova in Italy; IE University in Spain.

Professor Stephen Roper, of Warwick Business School and Director of the ERC, said: "The resilience of SMEs to adverse events, such as problems with finances and funding, skills and staffing, and is critical to sustaining European economic growth and competitiveness.

"Despite this, there is a lack of previous research on resilience in small firms, leaving substantial knowledge gaps.

"In particular, very little is known about how the challenges faced by owners vary depending on their social group and background.

"It is reasonable to assume that building a resilient business may be especially challenging for those from disadvantaged backgrounds, such as unemployed people in deprived areas or from ethnic minority groups.

"Challenges for disadvantaged entrepreneurs are likely to include lack of capital and established networks, which can all increase the risk of business failure.

"However, it is also possible that business leaders facing disadvantage may have developed novel, innovative solutions to dealing with challenges, which could in fact benefit and strengthen their businesses, and if this is the case, these need to be understood."

This landmark new study aims to develop practical tools and strategies to help SMEs strengthen their resilience in challenging times.

Hang Ho, Head of Europe, Middle East, Africa and Latin America, JPMorgan Chase Foundation, said: "JPMorgan Chase works with partners around the world to provide support services for entrepreneurs from a range of backgrounds."

"Despite systemic and personal challenges, many of these entrepreneurs respond with resilience and ingenuity to a wide range of shocks to their business—from a negative financial climate and natural disaster, to unexpected staffing changes and theft."

"We hope that this research can learn from their successes, and create tools to help more small businesses to respond resiliently in difficult circumstances."

As well as an in-depth telephone survey of 3,000 European firms, the research will involve consultations with city-level service providers from government and civil society through focus groups, and in-depth case studies.

Professor Mark Hart, of Aston University and Deputy Director of the ERC said: "The project will be of interest to individual business owners through to business support providers and policymakers at local and national levels.

"Each country will also have its own Advisory Group to guide the research and maximise impact, including individuals directly involved in business support and development."

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