There are and will be business opportunities, but the coronavirus crisis could cause serious changes in entrepreneurial activity because of the uncertainty and fear. This was revealed in the recent report of the Global Entrepreneurship Monitor (GEM), whose partner in Hungary is the Budapest Business School (BBS) from 2020.
The economic downturn caused by the coronavirus is not the first to be experienced by most businesses in operation presently, but they have never faced such a crisis, according to a recent report by the Global Entrepreneurship Monitor, the world’s largest entrepreneurial research.
Covid pandemic: the latest “black swan”
According to the results provided by the global research network, the Hungarian partner of which has become Budapest Business School in 2020, the economic impact of the pandemic is different and greater than that of the economic crisis of 2008 in several respects. What is happening now affects not only companies, but the society as a whole, and globally as well. The unfolding of the 2008 crisis was protracted compared to the coronavirus crisis, and entrepreneurs were able to rethink and reconsider their decisions. In contrast, the coronavirus was crippling, sudden, intense, blocking normal functions.
According to more than 300 academic experts from GEM, which has been collecting data continuously from more than 115 countries since 1999, although the situation is still changing daily and the analysis evaluates a “moving target”, the coronavirus crisis, like the 1918 Spanish flu epidemic, the great economic crisis in the first half of the 20th century,or the two world wars, is another, particularly rare, so-called ‘black swan’. The ‘black swan’ is an event that comes as a surprise, overturns normality, and its effects dramatically changes the life we have known so far.
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Experts also agree that the expected general economic effects of the coronavirus crisis and the fact that these effects will persist in the future are unprecedented – emphasized Dr. Judit Csákné, head of the Hungarian GEM research team, and head of research affairs at BBS Budapest LAB.
The covid crisis also differs from previous “black swan” phenomena in that, although global, it results in different sector-specific effects. Some sectors have been completely eroded, while others positively invigorated. According to a representative research conducted in spring by BBS, the differences can clearly be seen in Hungary as well. The impact of the epidemic was small in the sectors of agriculture and construction – in the former field, three-quarters (77.3%) while in the latter, almost two-thirds (62.5%) of the businesses indicated that the epidemic did not have a significant impact on their activities. In contrast, almost all (94.7%) of the businesses involved in tourism and hospitality, more than half (53.3%) of those providing other retail services, and also almos half (46.6%) of commercial businesses were forced to partially or completely shut down. Responding companies mentioned positive effects of the epidemic in higher proportions in the fields of transport and storage (12.9%), other retail services (8.9%) and trade (7.6%), due to home delivery and an increase in e-commerce.
According to a report by GEM experts, based on international data a common feature of entrepreneurs who successfully responded to the first wave of the coronavirus epidemic was that they increased their marketing efforts, offered new products and services, switched to or increased their online sales, and introduced telecommuting. The international research team is of the opinion that the longer-term impact of the crisis could be the whitening of businesses that have been operating in the gray zone to gain access to government support, and the formalization of informal business communities is also expected.
Necessity entrepreneurship is part of the recovery
The pandemic resulted in an immediate drastic deterioration in a number of critical indicators – unemployment, GDP, consumption – and also brought serious changes in entrepreneurial activity. For example, in the UK, the number of companies going out of business increased by 70% in March 2020 according to a UK member of GEM, and in Italy, the decline in setting up new companies is estimated at 40%. Fortunately, based on the data of the HCSO, there is no such decline in establishing new companies in Hungary. Although the number of new businesses in the spring months decreased significantly compared to the average of the previous four years, the decline may have been due to lockdown-related difficulties, as the number of new companies in June and July was significantly higher than the average of the previous years. It can be concluded from this that the majority of those who intend to set up a business have not given up on achieving their goals, they have only postponed the actual start. The impact of the coronavirus can still be clearly demonstrated by comparing the number of businesses established by the end of July 2020 with the 2019 data. By mid-summer, 8% fewer joint ventures and 14% fewer sole proprietorships had been established than in 2019. Although far-reaching conclusions cannot yet be drawn from the currently available data, the negative tendencies of the coronavirus crisis affecting entrepreneurship, which have also been experienced internationally, seem to be emerging, says the leader of the Hungarian GEM team.
It is important, though difficult to predict as of yet, whether the crisis caused by the coronavirus will show an L, U, or V shape in terms of entrepreneurial activity. From the trends following the 2008 crisis, it can be generally concluded that the number of enterprises declining with the crisis will start to increase swiftly with recovery. However, it is important to emphasis that
the core of the growing entrepreneurial activity is typically not made up of those who take advantage of new market opportunities, but rather people who are forced out of necessity and distress due to the increase in unemployment to become entrepreneurs – explaines the researcher of Budapest Business School. At the same time, both opportunity-driven and forced enterprises play an important role in recovering from the crisis as quickly as possible, among others as job creators.
However, according to a GEM expert workshop, the impact of the most important change is still difficult to predict today. It is unquestionable that the increase in fear and uncertainty will influence the decisions of entrepreneurs and to be entrepreneurs in the long run, but it would be premature to say how, experts say. Fear of failure has been growing in the U.S. for years, while in Spain, uncertainty is seen as the strongest economic threat of the coronavirus. The impact of fear and uncertainty on entrepreneurship is difficult to grasp and measure, but their growing tendencies are present and are likely to have a strong impact on the willingness to become entrepreneurs in the future.
Less globalization, new opportunities
Small and medium-sized enterprises are more vulnerable than larger companies, so a crisis is more likely to lead to their complete dissolution. However, their flexibility and ability to change more quickly is a clear advantage for them, as these qualities will be particularly important in a changed world. Although the authors of the report stress, it would be premature to say that the pandemic will lead to “creative disruption,” they argue that change also brings opportunities. “Deglobalisation” to ensure the continued procurement of essential and strategically important products will significantly transform the world’s trading system, creating opportunities for smaller and local businesses. As e-government, online education, telecommuting and employee re or further training are becoming growing markets. Among far-reaching changes, changes in consumer behavior are particularly important, to which companies will also have to respond. It should also be noted that experience to date has shown how important it is to pay attention to the fact that potential structural weaknesses in business ecosystems, such as excessive bureaucracy or financing difficulties, could seriously backfire and take their toll.