Impact of Global Crisis on Small and Medium Enterprises

Abstract

The impact of financial crisis has not been uniform across the globe. Apart from the epicentre of the crisis, those with higher dependency on external markets both for trade and finance had more immediate and larger impact of the global contagion. In contrast, the small businesses with lower diversification of product base and little option for downsizing had a relatively homogeneous impact across the world economies irrespective of trade dependency of the economy. This is because of strong backward linkages or an extensive participation of small and medium industries in the upstream supply chain, producing intermediates for both the exporting as well as non-exporting large industries. On the other hand, credit crunch faced by the small and medium enterprises (SMEs), deemed less credible but relatively more credit dependent than large industries, invigorated the impact of the crisis. Besides, some factors very specific to SMEs made them more vulnerable to the crisis.