Effects of the Corona Crisis on Germany 3 – SMEs in focusi

1 Market situation

The easing of the measures in the Corona crisis is a relief for all companies, especially for small and medium-sized enterprises (SMEs). Nevertheless, Marc S. Tenbieg, Chairman of the German Association of Small and Medium-Sized Enterprises, stressed that the future of many companies, irrespective of their sector, was still uncertain and that, in order to avert a wave of insolvencies, economic impulses would have to be implemented in addition to the support measures provided by the federal and state governments. He pointed out: "If you want to strengthen the economy, you have to strengthen small and medium-sized businesses in their entirety. After all, with over 17 million employees and 1.25 million trainees, they are the employment engine and the backbone of the German economy".1

An estimate by the IFO measures the proportion of companies that would have to close down within six months if the lockdown measures were to continue for a longer period of time and the resulting shortfalls were to occur. Accordingly, 29.2% of the companies surveyed fear having to close within three months. 52.7% stated that they would be able to continue for a maximum of six months. As 44.9% of retailers in April stated that they would be able to remain active for a maximum of another three months and 63.2% for a maximum of six months, the gradual lifting of the measures will make things easier for this sector especially. Nevertheless, according to this survey, 18% of companies had already had to react by laying off employees or not renewing expiring contracts.2

Meanwhile, the Federal Ministry of Economics and Technology claims to be prepared for a possible wave of insolvencies with a three-stage plan and can intervene within the plan if necessary with extended credit, tax benefits or interest-free deferrals of tax payments if the financial support measures taken to date are not sufficient to protect companies from insolvency.3

McKinsey & Company Germany Management Consultants conducted a survey of 522 SMEs from all sectors at the end of April, which showed that despite the fact that 56% of companies had not yet resumed operations or had only partially resumed them, 73% were affected by interruptions in the supply chain and 63% expected sales to continue to decline in the current quarter, around 77% were rather optimistic about the future. 11% even reported profits.4 The IFO's business climate index, which rose slightly in May by 5.3 points to 79.5 points, also shows a certain increase in optimism. 5

2 Digitalisation and reshoring

As the MacKinsey survey shows, the Corona crisis not only causes shortfalls, but also certain restructuring in everyday working life and in the company structure. According to the survey, for example, the significance of digitalisation for SMEs has increased as a result of the Corona crisis, with the result that 68 percent of SMEs are currently planning or implementing a completely new business area with independent digital products or services. "37 percent of the SMEs want to automate processes in response to the crisis, 45 percent want to invest in 5G, 36 percent in the Internet of Things (IoT) and also 36 percent in artificial intelligence (AI). In addition, 81 percent assumed that their working models would become more flexible overall.

The serious disruptions in supply chains are also causing more than one in four companies across all sectors to consider reshoring measures in order to regionalize at least parts of the supply chain. However, the survey also showed that this measure seems more appropriate for the IT, telecommunications, financial and insurance services industries. According to the survey, 70% of these industries are considering reshoring options, while only about 50% are considering it in the automotive, plant and machinery industries.4

The IFO express service welcomed the possibility of diversifying German supply chains, especially for imports of medical goods, where failures in the supply chain could have serious consequences. Although only 3.6% of all goods are imported from five or fewer countries, of which 44% come from EU countries, the free movement of goods within the EU is essential for the economy to revive. 17% of production takes place in Germany via international value chains, which is why the European production network is of great importance for Germany.6

 

Despite persistent concerns, a degree of optimism seems to be taking hold among small and medium-sized enterprises as measures against the pandemic are eased. How strong the SME's will be able to survive will depend, among other things, on how sustainable the relaxation will be. Should a second full lockdown occur, future prospects would have to be reassessed. However, the crisis also seems to have brought about some progress: Digitalisation is advancing and working models and company structures are becoming more flexible.

Also read our reports on the general effects on the German economy and tourism sector.

Sources

1 DMB Deutscher Mittelstandsbund; DMB begrüßt Bund-Länder-Beschluss und fordert branchenübergreifendes Konjunkturprogramm  (last viewed on May 27, 2020)
2 IFO Schnelldienst; Konjunkturumfragen im Fokus: Coronakrise trifft deutsche Wirtschaft mit voller Wucht ( page 58-59 (last viewed on May 27, 2020))
3 Bundesministerium für Wirtschaft und Energie; Überblick BMWi-3-Stufen-Plan  (last viewed on May 27, 2020)
4 McKinsey & Company Deutschland; Umfrage - Unternehmen wollen nach Corona digitaler werden  (last viewed on May 27, 2020)
5 Ifo-Geschäftsklimaindex; Unternehmen mit steigenden Erwartungen  (last viewed on May 27, 2020)
6 IFO; ifo Institut erwartet stärkere Diversifizierung der deutschen Lieferketten (last viewed on May 27, 2020)
7  IFO Schnelldienst; Status quo und Zukunft globaler Lieferketten (page 17 (last viewed on May 27, 2020))

Veröffentlicht in Articles & Reports, Business in Europe, Information.