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Small and medium businesses with big and endless problems

05 Jul 2022

  • How SMEs are struggling to stay afloat amidst the crisis
BY Sumudu Chamara “What the term ‘new normal’ meant to Sri Lankans a year ago is not what it means to them today. Despite being hopeful that the country would actually go back to the pre-Covid-19 era, now, the only ‘new normal’ Sri Lankans can hope for involves wasting days in queues to get a few litres of fuel, fighting and competing with fellow citizens to get essentials, being as sparing as possible, and living with minimum needs.  “When it comes to the country’s job market, pay cuts, less or more work, and uncertain job contracts have become part of the ‘new normal’ we are forced to operate in, and allowances, incentives, and increments are absolutely not possible in the near future.” These are the sentiments of a business owner, who spoke with The Morning about how the prevailing economic and social crises have affected the country’s small-scale businesses and entrepreneurs. According to them, due to the manner in which the country’s economy changed during the past few months, they are forced to go for cost-cutting measures, while employees are forced to look for better jobs amidst the crisis. Impacts of the fuel crisis Many employers raised concerns about how difficulties pertaining to increased travel costs and the lack of availability of rented vehicles and taxis have affected their businesses and staff, and highlighted it as the main factor that has compelled them to resort to cost cutting measures. According to 60-year-old cosmetics store owner Palitha Weerasekera (name changed on request), the situation is such that his store would have to be closed soon until the fuel crisis comes to an end, which he said would adversely affect both him and his employees. He pointed out that although the Government keeps telling the people to work from home while facilitating only essential services to get fuel, businesses such as his cannot be operated from home. He explained transport-related difficulties: “Earlier, I provided transport services to my staff only at night, after work, and there was no necessity to provide transport services for them to come to work. However, now, I have no option but to provide transport for my staff to come to and leave the store. The biggest issue however is that, while I have to provide transport services for the staff to come to work, transport costs have risen to an unbearable level.  “If I have to keep the business going, I have to provide transport facilities, and if I continue to provide transport facilities, I would not be able to balance the expenses and the income. With the recent price hikes, transport costs have gone up almost five times, which a small businessman like me cannot afford, especially when my income has also decreased by around 40%.  “I cannot operate like this. I have already made up my mind to close the store temporarily until the fuel supply becomes stable and transport-related difficulties are alleviated. However, that is the last step, and that is not an easy decision because I will still have to pay my staff and meet loan repayments.  “Still, I am trying my best to prevent a situation where I have to make that decision. One of the steps I took two weeks ago was asking only half of my staff to report to work. I have 14 people working in the store, and now, under this new decision, only seven of them come to work on Sundays, Mondays, and Tuesdays, while the remaining seven come to work on Wednesdays, Thursdays, and Fridays.” In response to The Morning’s question as to whether getting only 50% of the staff to report to work has been beneficial in dealing with the difficulties, Weerasekera mentioned: “It does not have any particular loss or profit. I just save the transport costs for five people to come to and leave the store, and at the same time, pay five people who do not work three days a week. This is not a time where we can think about profits. Most businessmen I know are merely balancing expenditures and their income.” In addition to limiting the number of staff coming to work, he said that he is also planning to impose a pay cut of 20%. “If the number of customers keeps decreasing, which has decreased by around 40% during the past two months, and if the cost of products keep increasing, I will have to go for a pay cut of around 20%.  “I know how bad it is for employees at this time. However, if I go bankrupt, I will lose my business and my employees will lose their jobs permanently in which case they get nothing. I think that it is better to pay them 80% than having to fire them.” Pay cuts and layoffs In the current economic downturn, Weerasekera is not the only small-scale businessman who had to consider cost cutting measures such as pay cuts. Some businessmen had to go beyond pay cuts, and fire or accept abrupt resignations of their employees. Thirty-seven-year-old entrepreneur Udaya Perera (name changed on request), who had employed 10 employees before the current economic crisis intensified, is now left with just six employees. This, he said, is a direct result of increased inflation, and international companies losing trust in Sri Lankan entrepreneurs. He explained: “I run a small information technology (IT)-based company, and my firm creates various software for foreign customers. In April, I had 10 employees working with me, and I was about to hire more. However, with the economy going downhill, income declined, and I had to fire three of my employees. I paid compensation, gave enough notice, and apologised to them. However, the impact it caused on my business is immeasurable, and I feel like the progress I achieved during the past two years has reversed.” “One of the main reasons I had to remove them was because of transport-related issues. Working from home is often seen as a luxury people in the IT industry enjoy, and in most cases, it is true. However, one of the disadvantages of working from home is employees having to spend their electricity and data, and use their personal devices. Even though big companies can provide such facilities or pay for the same, small-scale IT companies cannot do that. Even if we give an allowance in the short run, we cannot do it at present, because we do not know for how long we will have to do it.  “After a lengthy discussion on my employees’ demand for such facilities and the expression of my position that I cannot provide such facilities to work from home or transport services, I had to remove three employees. It dealt a heavy blow to my business. In addition, another employee quit after I had to decline his request for an increment, which he made citing rising inflation, which I totally understand.” To make matters worse, he said that the company’s management had decided to impose a 15% pay cut from August. “We are a small company and the country’s image affects our business to a great extent. When our international clients learn about the prevailing economic instability, they hesitate to renew our contracts, or get our service for new projects. We have lost around 30% of our monthly income, and this compelled the company to consider pay cuts. This is also not a good decision. But, we have no other option. When the income decreases with no practical, short-term solution, we have to decrease expenses.” In addition, he said that he had to cut down on several allowances such as the food allowance given to employees in a bid to reduce expenses. What is more, he said that the number of working days was also reduced to four days a week, to save electricity, data, and travel costs. Another objective of introducing a four-day work week, Perera said, was to be fair to employees as their salaries are going to be reduced from next month. Reducing allowances The Morning also spoke to 55-year-old small-scale garment factory owner Amila Ranatunga (name changed on request), whose factory employs over 25 people. He opined that the garment industry had to take more stern cost cutting measures than any other industry, and that small-scale companies in the industry are on the brink of collapse. “The garment industry gives a lot of allowances for attendance, performance, food, and sometimes even for travelling because not every small garment factory can provide transport facilities. Even though these allowances looked attractive several months ago, now, they have become a burden to many companies.  “On the one hand, we are definitely not in a position to continue to pay these allowances. On the other hand, these allowances make up a large portion of the employees’ salaries, and therefore, reducing them is going to be a huge issue to them.” Some of the cost-cutting measures he took during the past few months include reducing the travelling allowance from Rs. 5,000 a month to Rs. 3,500, reducing the food allowance from Rs. 5,000 a month to Rs. 4,000, and reducing attendance and performance allowances by nearly 30%. Expressing concerns that some employees have left the company due to these measures, he said that for the company to survive and continue to pay the employees, such measures have become necessary. He added: “Several small-scale garment factories I know have taken similar measures. Some even decided not to grant permanent status to those who were working as trainees, while some did not renew the contracts of those who were working on a contract basis. In addition, to reduce costs, companies are considering other measures such as using a lesser number of electric bulbs at the workplace and limiting transport facilities.” According to economists, one of the key ways that Sri Lanka can get out of the prevailing economic crisis is through increased and improved business activities, especially those earning in foreign currency through exports.  However, th equeues we see on a daily basis are just the surface of the crisis, and crises at workplaces and businesses should also receive attention before they worsen further. The failure to do that will make economic recovery extremely difficult, even if the era of queues is addressed. The future of both employees and employers is at stake.


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