Description
Abstract explain entrepreneurship and business creation chair, universitat rovira i virgili, spain.
[1]
Examining the strategic response of Small and Medium size firms to the economic
crisis: The role of perceptions
Papaoikonomou Eleni, Li Xiaoni and Segarra Pere
Entrepreneurship and Business Creation Chair, Universitat Rovira i Virgili, Spain
Introduction
According to economists, the economic recession that started in 2007 in the United
States and soon expanded in other developed economies is the worst one since the Great
Depression of 1930’s. This context poses a great challenge for firms that need to
adequate adapt to the changing environment through the adoption of strategic measures.
Nevertheless, little is known about the processes that determine the adoption of certain
strategic decisions instead of others, even though much research has focused on the
identification of the corporate strategic responses in times of uncertainty. Towards this
more general aim, we want to:
1) to examine how firms perceive and respond to the current crisis. We consider
important to keep in mind that decisions in firms are taken by people, so their
perceptions with regards the magnitude and severity of the crisis may affect their
decision making.
2) to develop a typology that differentiates between firms that perceive different
degrees of severity of the crisis and adopt different strategies to respond to
seemingly similar threats. To do that we carry out a cluster analysis.
We place special emphasis on Small and Medium Sized (SMEs) firms, because they are
the backbone of all economies and play a key role to the economic recovery and future
growth (http://www.oecd.org/dataoecd/53/27/37704120.pdf). In Europe, they represent
99% of all businesses and count for two thirds of private sector jobs
(http://ec.europa.eu/enterprise/magazine/articles/smes-ntrepreneurship). According to
the Spanish National Statistics Institute (INE), SMEs also account for 99% in Spain and
Catalonia.
[2]
Consequently, given the importance of SMEs for the global, European and national
economies, it is timely to examine the strategic response of SMEs in the current context
of crisis using as basis the Hofer’s (1980) framework of turnaround strategies.
We have taken as reference the Catalonian region in Spain, since Catalonia is one of the
most dynamic Spanish regions in terms of entrepreneurship, especially in the recent
times of crisis (GEM Report (2011).
Theoretical Background
Strategic Response in times of environmental uncertainty
We did not limit the scope of the literature review to firm behaviour in times of
economic recession. We also reviewed the relevant literature on firm response to
decline in general. So, we intended to understand what firms do when they are found in
difficulties that jeopardise their presence and continuing existence in the market.
Much research has been carried out in this field. Hofer (1980) studied 12 cases of
financially distressed businesses. He intends to identify main types of turnaround
situations and turnaround strategies for firms in financial distress and suggests a
framework to match specific strategies with specific situations. Hofer argues that there
are two types of turnarounds: strategic and operating. His classic framework for
turnaround strategies dictates three different approaches to cope with an economic
recession: asset reduction, cost reduction and revenue generation.
According to Hofer (1980), each of these strategies reflects a different degree of
severity of the operating situation. More specifically, cost reduction is employed by
firms that operate above their break-even point and need to increase their profitability,
but asset reduction is a last resort solution for firms that operate far below breakeven
point. Revenue enhancement would be a type of strategy found in-between the other
two.
In a later study, Hambrick and Schecter (1983) sampled exclusively mature industrial
product business units and found that a large amount of businesses employed cost
and/or asset reduction, but not revenue generation. In general, retrenchment strategies
4
are a rather common practice to cope with declining financial performance. Companies,
especially small firms, tend to employ them in times of crisis (Robbins and Pearce,
[3]
1993; Michael and Robbins, 1998; DeDee and Vorbies, 1998; Latham, 2009).
According to Michael and Robbins (1998) firms tend to shed cost and asset factors that
can be easily repurchased and have low specifity for the firm such as hourly workers
instead of executives, advertising instead of marketing channels and raw materials in
inventories instead of machinery and equipment. Nevertheless, Latham (2009) found
that small software companies tended to adopt revenue generating strategies adding
though, that it might be due to the lack of cost-reduction alternatives.
The role of perceptions
There is an on going debate as to whether SMEs can better take advantage of the arising
opportunities or they are the hardest hit by the crisis (Latham, 2009).
Nevertheless, we assume that the strategic direction of a firm in the context of crisis
depends on the perceptions of the decision maker. Influenced by the ‘Carnegie School’
tradition, researchers have taken into account that strategy formulation and decision
making depend on the subjective realities of bounded rationality of the decision makers
of the firms (Cyert and March, 1963). For instance, Schwenk (1984) argues that
decision makers perform a number of tasks related to strategy formulation such as goal
setting, problem identification and alternatives generation. Also, much research has
been conducted on how demographic characteristics of decision makers in large firms
such as career experiences (Bantel and Finkelstein, 1995) or educational level
(Herrmann and Datta, 2005) affect decision makers’ world views and so, the decisions
taken by them.
In line with these studies, we embrace the assumption that firms are run by individuals
and that strategic decision making is bound to the subjective worldviews and
perceptions that these individuals form. It is important to take into account the
perceptual subjectivity of decision makers since as Bratton et al. (2007; p.212) mention
“the perception processes mean that individuals usually interpret other people and
situations differently and so routinely hold different views of reality, which in turn
strongly influence their attitudes and actions”. Smart and Vertinsky (1984) found that
the adoption of a certain strategy depends on executives’ perceptions of the context and
of the future impact of the strategic change on the firm. Furthermore, Latham (2009;
p.197) explains that in his study, managers of larger firms felt “handcuffed by their
[4]
size” and strongly perceived the damaging effect of the recession that led them to
formulate respective strategies. On that basis, Latham (2009) proposes that future
research should address the relationship between managers’ attitudes and strategy
formulation to external threats to the firm.
In this study, we examine the perceptions of the decision makers with regards the
magnitude of the current economic recession and its impact on their firm, the existence
of positive signals in the market, the difficulties encountered because of structural
factors and/or factors that directly relate to the context of the crisis and the identification
of opportunities in the current marketplace. Then, we intend to group firms that perceive
the crisis in a more or less negative way because of the perceived magnitude of impact it
has on their firms’ functioning. Furthermore, we want to examine whether decision
makers in that hold very negative perceptions of the economy situation and of the
recessionary effects on their firm, will tend to adopt more extreme strategies including
asset reduction. In other words, our focus is to understand whether and how perceptions
lead to certain strategies adoption. We believe that such an understanding allows to
differentiate between firms’ behaviour and response in times of crisis and offers the
basis to form policies by taking into account the psychological factor of the crisis and
the impact it has on the decision makers.
Methodology
Data were collected through a survey. Initially, the questionnaire was administered
online through e-mails to the companies’ managers. However, due to the relatively low
response rate, we followed up with structured face-to-face interviews based on the same
questionnaire. In total, 96 valid responses were collected.
Spain was selected as broader context of study, because it has suffered a severe
economic slowdown during this crisis presenting the higher rate of unemployment in
the European Union zone with 22.8% according to Eurostat data for October 2011
(http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/3-30112011-BP/EN/3-30112011-
BP-EN.PDF). In specific, the study took place in the Spanish north-eastern region of
Catalonia.
In terms of firm size, we mainly use the criterion number of employees
4
and limit our
sample to firms employing from 3 to 100 people. We only partially follow the new
[5]
established criteria of SMEs in the European Commission Recommendation
2003/361/EC
5
because there is a strong and obvious density in firms having 3 to 100
employees in the Catalonian region representing almost 70% of the population of SMEs
in this region (Li et al., 2011).
The time span for the recollection of data was between February 2011 and August 2011.
We selected this timeframe, because the financial and economic crisis already started in
2007 and the recessionary effects were evident and ‘felt’ in that period. Also, it was
expected that a large amount of firms would have already taken some type of measure
to deal with the crisis. So, respondents could base their answers both to strategic
measures already adopted since the beginning of the crisis, but also considering the
situation at the moment of the survey.
To elaborate the questionnaire, we divided questions in three major sections. The first
section focused on demographics of the business and the decision maker (such as sector,
number of employees, total annual revenue generation, types of financing used by the
business, business experience of the decision maker etc). The second section focused on
the perceptions of the managers regarding the recessionary effects of the crisis on the
economy as a total and on their firm. It is important to mention that the questions in this
section were developed on the basis of the findings of a previous qualitative study
carried out by our research team during 2010 (Papaoikonomou et al., 2012; Segarra et
al., 2012). This qualitative study consisted of eight focus groups with businessmen in
the Catalonian region and focused on the perceptions regarding the economic and
financial crisis. In total, 205 local businessmen had participated. The third section
included questions on the strategic response of the SMEs. The turnaround strategies’
framework by Hofer (1980) served as a guide to formulate the questions in this section.
In terms of analysis, in an effort to go beyond a descriptive study, we carry out cluster
analysis to examine whether different perceptions with regards the crisis lead to the
adoption of different types of strategic decisions. We carry out a non-hierarchical
typological analysis identifying the existing clusters of SMEs sample according to the
degree of difficulties perceived in the crisis. The cluster analysis was carried out
applying K-means clustering method, a non-hierarchical cluster analysis (Hair,
Anderson, Tatham, & Black, 1998). In this way, we can identify firms that adopt
different behaviours according to their perceptions of the crisis and also we can relate
the results obtained according to the strategic responses applied.
Findings
We first carried out the K-means cluster analysis and detected three optimal groups of
clusters regarding the perception of degree of difficulties in the context of the current
crisis for our sample. Cluster 1 is designated as a perception of medium degree of
difficulties regarding aspects listed in Table 1. Cluster 2 is designated as a perception of
below-average degree of difficulties and cluster 3 is designated as a perception of
above-average degree of difficulties in the related aspects (see Table 1). According to
the size of each cluster analysed, we can see the sample structure of the three clusters
obtained in Figure 1. As displayed in Figure 1, cluster 1 includes the majority of firms
(43% of total sample) in our sample, which indicates that most of companies in our
sample percept a medium level in terms of degree of difficulties under the context of
current crisis in year 2011. Cluster 3 includes 36 firms (37% of total sample), which
indicates a high degree of perception of difficulties encountered in the crisis. Cluster 2,
which weights 20% of sample analysed, displays that firms in this cluster group have
sensed a relatively low degree of difficulties accompanied with the crisis. From the size
of the each cluster group, we can detect that in general most of the firms (80% out of
total sample) in our sample perceives a medium or high degree of difficulties in the on
going crisis.
Figure 1. Sample cluster structure
[6]
[7]
Regarding the concrete difficulties firms encountered in times of crisis, all three
identified clusters display a consistent tendency in certain difficulties (See Table 1).
Among all cluster groups, decrease of sales and decrease of gross profits are detected as
difficulties with the highest degree of perception accompanied with the current crisis.
Inadequate or lack of infrastructure and qualified personnel are aspects identified as
difficulties with lowest degree of perception for cluster 1 and 2 in the context of crisis.
System of hiring employees and availability of suppliers are detected as difficulties with
lowest degree of perception for cluster 3 in year 2011.
In the carried out survey, we also brought up the question that if the aforementioned
difficulties encountered during the crisis were also detected before the start of the crisis
in year 2007. We relate this question to the three clusters identified and obtain the
results of the analysis in Table 2. As we can see in Table 2, the three cluster groups
detected the difficulties before the start of the current crisis with respect to qualified
personnel, employee costs and emergence of new competitors. Cluster 1 and cluster 3
with medium-high degree of perception regarding difficulties encountered during the
crisis also reveals detection of difficulties with respect to system of hiring employees.
Cluster 2 (low perception) yields rather different results compared with cluster 1 & 3
and displays detection of difficulties before the start of crisis with respect to emergence
of new competitors and no difficulties perceived at all before the start of the crisis.
Table 1. Identified cluster with respect to perception of degree of difficulties in
the current crisis
Perception of
difficulties
Cluster 1 Cluster 2 Cluster 3
Variation in number
of clients
4.44 1.68 5.03
Labour regulation 3.73 1.84 5.31
System of hiring
employees
2.44 1.63 3.44
Suppliers
2.41 1.42 3.61
[8]
availability
Employee cost 3.78 2.00 5.25
Delinquent accounts 4.93 2.89 5.67
Difficulties in
accessing credit
4.32 2.63 5.58
Lack of liquidity 4.37 2.26 5.28
Lack of
infrastructure
1.93 1.05 4.33
Relationship with
public
administration
2.44 1.58 5.28
Decrease of gross
profit
5.02 3.05 6.00
Decrease of sales 5.51 3.63 5.72
Emergence of new
competitors
3.17 1.53 5.08
Taxes 3.83 2.21 5.33
Qualified personnel 2.05 1.42 4.00
Inadequate
infrastructure
2.15 1.00 4.69
Table 2. Perception of difficulties before crisis
Percentage
of total
sample
Percentage
within Cluster
1
Percentage
within Cluster
2
Percentage
within Cluster
3
Variation in
number of clients 10% 15% 5% 8%
Labour regulation 15% 17% 0% 19%
System of hiring
27% 32% 5% 33%
[9]
employees
Suppliers
availability 10% 2% 16% 17%
Employee cost 36% 37% 16% 47%
Delinquent
accounts 20% 17% 11% 28%
Difficulties in
accessing credit 7% 5% 0% 14%
Lack of liquidity 6% 2% 5% 11%
Lack of
infrastructure 15% 7% 0% 31%
Relationship with
public
administration 17% 15% 11% 22%
Decrease of gross
profit 18% 15% 11% 25%
Decrease of sales 10% 5% 5% 19%
Emergence of
new competitors 35% 37% 26% 39%
Taxes 27% 29% 5% 36%
Qualified
personnel 40% 32% 21% 58%
Inadequate
infrastructure 16% 10% 0% 31%
Other difficulties 2% 0% 5% 3%
No 13% 10% 42% 0%
Our objective is not only to identify clusters on the basis of their perceptions with
regards the severity of the crisis, but also to understand the type of actions they adopt to
deal with it. To describe possible practices that firms adopt in times of crisis we have
adopted Hofer’s framework and have included different actions related to cost
[10]
reduction, asset reduction and revenue generation. Regarding revenue generation we
were interested in strategies that aim at short and long term revenue.
Table 3. Cost reduction approach
Cost Reduction Action
Percentage of
total sample
carrying out
the action
Percentage
within Cluster
1
Percentage
within
Cluster 2
Percentage
within
Cluster 3
Reducing energy&
phone expenses 63.5% 58.5% 42.1% 80.6%
Reducing market
research 20.8% 19.5% 21.1% 22.2%
Reducing cost in
advertising 59.4% 68.3% 26.3% 66.7%
Reducing extra salaries 49.0% 51.2% 31.6% 55.6%
Reducing participation
in pensions funds 8.3% 9.8% 5.3% 8.3%
Reducing in employee
training 12.5% 17.1% 5.3% 11.1%
Reducing
administrative costs 55.2% 61.0% 26.3% 63.9%
Reducing expenses in
R&D 22.9% 31.7% 5.3% 22.2%
Reducing costs in other
types of promotion 37.5% 41.5% 26.3% 38.9%
Flexibility employee
schedule/working days 27.1% 36.6% 15.8% 22.2%
Firing employees 61.5% 63.4% 36.8% 72.2%
Other action adopted 5.2% 2.4% 10.5% 5.6%
No action adopted 5.2% 2.4% 21.1% 0.0%
[11]
In total, firms were asked whether they adopt 32 different actions to deal with the crisis;
12 related to cost reduction, 6 related to asset reduction, 14 related to short-term and
long-term revenue generation. Firms that do not adopt any actions given in the survey
can also indicate other actions adopted or no actions adopted at all. Thus, comparing
between clusters regarding the approach of cost reduction, asset reduction and revenue
generation, we can make the following useful observations:
- Reducing costs: as shown in Table 3, among all measures for reducing costs
indicated in the survey, 63.5% of firms in our sample carry out reduction in
energy and phone expenses (61 out of 96). 61.5% of the firms carry out cost
reduction in firing employees (59 out of 96) and 59.4% of firms take measures
as reducing cost in advertising (57 out of 96). 80.6% (29 out of 36) of the firms
pertaining in Cluster 3 claim to deal with the crisis by cutting their energy and
phone bill as opposed to 58.5% and 42.1% of Clusters 1 and 2 respectively. We
notice that Cluster 3 is the group that perceives most difficulties in the current
context of crisis. Also, a higher percentage of the firms in Cluster 3 (72.2%) take
the decision to fire employees as a form to go through the crisis. On the
contrary, in Cluster 2, the cluster with the lowest degree of perceptions with
regards the severity of the crisis; only 36.8% decide to lay off employees as a
result of the crisis. Furthermore, as Table 3 shows, a higher portion of firms in
Cluster 1 and 3 reduce costs in advertising and administrative costs comparing
to Cluster 2. Consequently, we can deduce that the more negative the
perceptions regarding the difficulties of the crisis, the more firms tend to adopt
measures to cut their costs and deal with it. A large amount of firms in Cluster 3
(who perceive the crisis as more severe than the other segments of firms) prefer
to deal with the crisis through the adoption of measures such as reduction of
variable costs (energy and phone bill) and laying off employees, than selling
assets.
- Reducing assets: In Table 4, we can see that the actions adopted by the sample
related to asset reduction. 71.9% of firms (69 out of 96) in our sample have not
taken any action in terms of assets reduction at all and 15.6 of firms and 15.6%
[12]
of firms (15 out of 96) prefer to sell fixed assets. In general firms in the sample
prefer other types of strategies such as reducing costs instead of selling assets
that could seriously compromise their production capacity. However, it is
interesting to note that only firms in Cluster 3 opt to eliminate non-profitable
products and units as a way to create a healthier portfolio. Instead, regarding the
sale of fixed assets, 21.1% of firms in Cluster 2 have decided to sell machines,
equipment and other fixed assets comparing to 19.4% of firms in Cluster 3 and
9.8% of firms in Cluster 1.
Table 4. Asset reduction approach
Asset Reduction Action Percentage of
total sample
carrying out the
action
Percentage
within
Cluster 1
Percentage
within
Cluster 2
Percentage
within
Cluster 3
Selling Fixed Assets (Machines,
Equipment, Real Estate)
15.6% 9.8% 21.1% 19.4%
Eliminating non profitable products 11.5% 0% 0% 30.6%
Eliminating non profitable units 3.1% 0% 0% 8.3%
Other action adopted 0% 0% 0% 0%
No action adopted 71.9% 87.8% 84.2% 47.2%
- Revenue Generation: according to our findings, revenue generation strategies
are more common than asset reduction strategies, but less popular than cost
reduction strategies. As Table 5 demonstrates, 66.7% of all firms in the sample
decide to reduce the prices of their products to adapt to the new market situation.
The percentage is higher in Clusters 1 and 3 indicating that the perceived
severity of the crisis translates in lower cost offering to attract more consumers.
Also, almost 39% of firms in Cluster 3 adopt niche marketing and focus on
specific, more profitable segments in the market.
[13]
Furthermore, it is interesting to note that firms in Cluster 1 and 3 engage more in
revenue generation strategies such as training employees, diversification in other
sectors and investing in R&D, when compared to firms in Cluster 2.
Instead, a large percentage of firms in Cluster 2 consider other types of revenue
generation as more plausible solutions such as further promotion of existing
products and adaptation of product offering (68.4% and 42.1% respectively).
Table 5. Revenue generation approach
Revenue Generation Action
Percentage
of total
sample
carrying
out the
action
Percentage
within
Cluster 1
Percentage
within
Cluster 2
Percentage
within
Cluster 3
Reduce products’ prices 66.7% 68.3% 57.9% 69.4%
Promote existing products 54.2% 46.3% 68.4% 55.6%
Readapt existing products 36.5% 29.3% 42.1% 41.7%
Buying Fixed Assets 39.6% 51.2% 26.3% 33.3%
Focus on specific segments 29.2% 22.0% 26.3% 38.9%
Training Employees 27.1% 31.7% 15.8% 27.8%
Buying systems to save energy
etc.
21.9% 22.0% 21.1% 22.2%
Diversification to other sectors 12.5% 17.1% 5.3% 11.1%
Investing in R&D 12.5% 9.8% 5.3% 19.4%
Hiring personnel 8.3% 12.2% 10.5% 2.8%
Increasing investment in
advertising 6.3% 4.9% 15.8% 2.8%
Increasing investment in other
promotion activities 5.2% 4.9% 10.5% 2.8%
Other action adopted 1% 2% 0% 0%
[14]
No action adopted 4% 5% 5% 3%
In Table 6, the most commonly adopted measures have been identified. We can observe
that in their majority, firms tend to adopt measures to cut down on different types of
costs, instead of adopting strategies for short or long term revenue generation. In the
same table we compare the percentages of firms that adopt these measures within each
of the identified clusters.
Table 6. The most commonly adopted measures in the sample
Action Percentage of
total sample
carrying out the
action
Percentage
within
Cluster 1
Percentage
within
Cluster 2
Percentage
within
Cluster 3
1.Reducing the products’ prices 66.7% 68.3% 57.9% 69.4%
2.Reducing energy and phone bill 63.5% 58.5% 42.1% 80.6%
3.Reducing personnel 61.5% 63.4% 36.8% 72.2%
4.Reducing costs in advertising 59.4% 68.3% 26.3% 66.7%
5.Reducing administrative costs 55.2% 61% 26.3% 63.9%
6.Promoting existing products 54.2% 46.3% 68.4% 55.6%
7.Reducing extra complements of
salaries
49.0% 51.2% 31.6% 55.6%
8.Buying Fixed Assets 39.6% 51.2% 26.3% 33.3%
9.Reducing costs in other promotion
efforts
37.5% 41.5% 26.3% 38.9%
10.Readapt your products 36.5% 68.3% 57.9% 69.4%
[15]
Discussion and Policy Implications
The results of this study have led to the identification of three clusters according to the
perceived severity and magnitude of the impact of the crisis.
We notice that the participants link the crisis and the uncertainty it provokes more with
the lack of liquidity, the decrease in sales and the limited access to credit. But, other
difficulties such as finding qualified personnel, the cost of employees and the
emergence of new competitors may hinder firms’ survival, but they existed even before
the crisis. Thus, the crisis has simply accentuated their impact on the firm.
The identification of the three clusters also revealed that firms in these clusters
demonstrate different patterns of behaviour.
In general, firms of Cluster 2 with lowest sensitivity to the difficulties of the crisis
demonstrate a more passive pattern of behaviour. Besides exceptions, they adopt less
measures in all three categories; cost reduction, asset reduction and revenue generation.
Firms in Cluster 2 and 3 that perceive more strongly the negative impact of the current
crisis, seem to deal with it through the adoption of various strategies that even though
focus more on reducing costs they also engage in strategy formulation (diversification
to other sectors, low cost prices, niche marketing).
The great majority of firms in Cluster 3 clearly show how they try to become more
efficient through cutting down on all types of cost they are considered unnecessary such
as administrative costs, energy and phone bills, costs in advertising. It seems that the
more negatively perceived the impact of the crisis, the more firms tend to lay off
employees to cut down on their costs. The majority of firms in Cluster 1 (63.4%) and 3
(72.2%) choose to fire employees while they do not easily divest fixed assets (only
9.8% of firms in Cluster 1 and 19.4% in Cluster 3). This shows that fixed assets are
considered as of vital importance for the continuance of the firms, while firing
employees is seen as a way to reduce costs. At the same time, only 2.8% of firms in
Cluster 3 mention that they hire personnel to improve their production capacity. These
are interesting findings especially since the unemployment rate in Spain has reached
24.4% in March 2012, the highest rate in 18 years, according to Eurostata statistics
(http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&language=en&pcode=teilm02
0&tableSelection=1&plugin=1).
[16]
Therefore, we believe that the way decision makers in firms perceive the crisis affects
the measures adopted and the strategy formulation to deal with the crisis. For instance,
69.4% of firms in Cluster 3 have reduced their prices to adapt to a new market situation
where consumers crave for low cost offerings. Also, a high percentage of firms in
Cluster 3 choose to reduce personnel to become more cost effective. This, though, has
social implication that need to be taken into account by policy makers. Furthermore,
only 12.5% of firms in our whole sample consider investing in R&D. Even though the
percentage is higher for Cluster 3 (19.4 %), these percentages indicate that most firms
focus on cost cutting to survive and cope with the crisis, instead of innovation and
growth.
We can conclude that the most widely used response to the current crisis is to reduce
costs, especially those related to salaries and administrative costs. This results of
applying business model with a high component of labour-based instead of knowledge-
based model. Most cost reduction measures would yield an immediate result for short
term but not a strategic response for the long run. The results reveal the necessity in
firm’s structural change and proactive strategies instead of only short-term reactive
responses.
Furthermore, policy makers need to take into account the psychological component of
the crisis and understand that not all firms perceive the current economic crisis in a
similar way, neither they will react in the same way. While cost cutting may be
desirable in the current context to a certain extent so that the efficiency of the firm
increases, it should be accompanied by incentives for firms to retain or hire employees
and invest more in innovation and R&D.
References Available upon Request
doc_485743748.pdf
Abstract explain entrepreneurship and business creation chair, universitat rovira i virgili, spain.
[1]
Examining the strategic response of Small and Medium size firms to the economic
crisis: The role of perceptions
Papaoikonomou Eleni, Li Xiaoni and Segarra Pere
Entrepreneurship and Business Creation Chair, Universitat Rovira i Virgili, Spain
Introduction
According to economists, the economic recession that started in 2007 in the United
States and soon expanded in other developed economies is the worst one since the Great
Depression of 1930’s. This context poses a great challenge for firms that need to
adequate adapt to the changing environment through the adoption of strategic measures.
Nevertheless, little is known about the processes that determine the adoption of certain
strategic decisions instead of others, even though much research has focused on the
identification of the corporate strategic responses in times of uncertainty. Towards this
more general aim, we want to:
1) to examine how firms perceive and respond to the current crisis. We consider
important to keep in mind that decisions in firms are taken by people, so their
perceptions with regards the magnitude and severity of the crisis may affect their
decision making.
2) to develop a typology that differentiates between firms that perceive different
degrees of severity of the crisis and adopt different strategies to respond to
seemingly similar threats. To do that we carry out a cluster analysis.
We place special emphasis on Small and Medium Sized (SMEs) firms, because they are
the backbone of all economies and play a key role to the economic recovery and future
growth (http://www.oecd.org/dataoecd/53/27/37704120.pdf). In Europe, they represent
99% of all businesses and count for two thirds of private sector jobs
(http://ec.europa.eu/enterprise/magazine/articles/smes-ntrepreneurship). According to
the Spanish National Statistics Institute (INE), SMEs also account for 99% in Spain and
Catalonia.
[2]
Consequently, given the importance of SMEs for the global, European and national
economies, it is timely to examine the strategic response of SMEs in the current context
of crisis using as basis the Hofer’s (1980) framework of turnaround strategies.
We have taken as reference the Catalonian region in Spain, since Catalonia is one of the
most dynamic Spanish regions in terms of entrepreneurship, especially in the recent
times of crisis (GEM Report (2011).
Theoretical Background
Strategic Response in times of environmental uncertainty
We did not limit the scope of the literature review to firm behaviour in times of
economic recession. We also reviewed the relevant literature on firm response to
decline in general. So, we intended to understand what firms do when they are found in
difficulties that jeopardise their presence and continuing existence in the market.
Much research has been carried out in this field. Hofer (1980) studied 12 cases of
financially distressed businesses. He intends to identify main types of turnaround
situations and turnaround strategies for firms in financial distress and suggests a
framework to match specific strategies with specific situations. Hofer argues that there
are two types of turnarounds: strategic and operating. His classic framework for
turnaround strategies dictates three different approaches to cope with an economic
recession: asset reduction, cost reduction and revenue generation.
According to Hofer (1980), each of these strategies reflects a different degree of
severity of the operating situation. More specifically, cost reduction is employed by
firms that operate above their break-even point and need to increase their profitability,
but asset reduction is a last resort solution for firms that operate far below breakeven
point. Revenue enhancement would be a type of strategy found in-between the other
two.
In a later study, Hambrick and Schecter (1983) sampled exclusively mature industrial
product business units and found that a large amount of businesses employed cost
and/or asset reduction, but not revenue generation. In general, retrenchment strategies
4
are a rather common practice to cope with declining financial performance. Companies,
especially small firms, tend to employ them in times of crisis (Robbins and Pearce,
[3]
1993; Michael and Robbins, 1998; DeDee and Vorbies, 1998; Latham, 2009).
According to Michael and Robbins (1998) firms tend to shed cost and asset factors that
can be easily repurchased and have low specifity for the firm such as hourly workers
instead of executives, advertising instead of marketing channels and raw materials in
inventories instead of machinery and equipment. Nevertheless, Latham (2009) found
that small software companies tended to adopt revenue generating strategies adding
though, that it might be due to the lack of cost-reduction alternatives.
The role of perceptions
There is an on going debate as to whether SMEs can better take advantage of the arising
opportunities or they are the hardest hit by the crisis (Latham, 2009).
Nevertheless, we assume that the strategic direction of a firm in the context of crisis
depends on the perceptions of the decision maker. Influenced by the ‘Carnegie School’
tradition, researchers have taken into account that strategy formulation and decision
making depend on the subjective realities of bounded rationality of the decision makers
of the firms (Cyert and March, 1963). For instance, Schwenk (1984) argues that
decision makers perform a number of tasks related to strategy formulation such as goal
setting, problem identification and alternatives generation. Also, much research has
been conducted on how demographic characteristics of decision makers in large firms
such as career experiences (Bantel and Finkelstein, 1995) or educational level
(Herrmann and Datta, 2005) affect decision makers’ world views and so, the decisions
taken by them.
In line with these studies, we embrace the assumption that firms are run by individuals
and that strategic decision making is bound to the subjective worldviews and
perceptions that these individuals form. It is important to take into account the
perceptual subjectivity of decision makers since as Bratton et al. (2007; p.212) mention
“the perception processes mean that individuals usually interpret other people and
situations differently and so routinely hold different views of reality, which in turn
strongly influence their attitudes and actions”. Smart and Vertinsky (1984) found that
the adoption of a certain strategy depends on executives’ perceptions of the context and
of the future impact of the strategic change on the firm. Furthermore, Latham (2009;
p.197) explains that in his study, managers of larger firms felt “handcuffed by their
[4]
size” and strongly perceived the damaging effect of the recession that led them to
formulate respective strategies. On that basis, Latham (2009) proposes that future
research should address the relationship between managers’ attitudes and strategy
formulation to external threats to the firm.
In this study, we examine the perceptions of the decision makers with regards the
magnitude of the current economic recession and its impact on their firm, the existence
of positive signals in the market, the difficulties encountered because of structural
factors and/or factors that directly relate to the context of the crisis and the identification
of opportunities in the current marketplace. Then, we intend to group firms that perceive
the crisis in a more or less negative way because of the perceived magnitude of impact it
has on their firms’ functioning. Furthermore, we want to examine whether decision
makers in that hold very negative perceptions of the economy situation and of the
recessionary effects on their firm, will tend to adopt more extreme strategies including
asset reduction. In other words, our focus is to understand whether and how perceptions
lead to certain strategies adoption. We believe that such an understanding allows to
differentiate between firms’ behaviour and response in times of crisis and offers the
basis to form policies by taking into account the psychological factor of the crisis and
the impact it has on the decision makers.
Methodology
Data were collected through a survey. Initially, the questionnaire was administered
online through e-mails to the companies’ managers. However, due to the relatively low
response rate, we followed up with structured face-to-face interviews based on the same
questionnaire. In total, 96 valid responses were collected.
Spain was selected as broader context of study, because it has suffered a severe
economic slowdown during this crisis presenting the higher rate of unemployment in
the European Union zone with 22.8% according to Eurostat data for October 2011
(http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/3-30112011-BP/EN/3-30112011-
BP-EN.PDF). In specific, the study took place in the Spanish north-eastern region of
Catalonia.
In terms of firm size, we mainly use the criterion number of employees
4
and limit our
sample to firms employing from 3 to 100 people. We only partially follow the new
[5]
established criteria of SMEs in the European Commission Recommendation
2003/361/EC
5
because there is a strong and obvious density in firms having 3 to 100
employees in the Catalonian region representing almost 70% of the population of SMEs
in this region (Li et al., 2011).
The time span for the recollection of data was between February 2011 and August 2011.
We selected this timeframe, because the financial and economic crisis already started in
2007 and the recessionary effects were evident and ‘felt’ in that period. Also, it was
expected that a large amount of firms would have already taken some type of measure
to deal with the crisis. So, respondents could base their answers both to strategic
measures already adopted since the beginning of the crisis, but also considering the
situation at the moment of the survey.
To elaborate the questionnaire, we divided questions in three major sections. The first
section focused on demographics of the business and the decision maker (such as sector,
number of employees, total annual revenue generation, types of financing used by the
business, business experience of the decision maker etc). The second section focused on
the perceptions of the managers regarding the recessionary effects of the crisis on the
economy as a total and on their firm. It is important to mention that the questions in this
section were developed on the basis of the findings of a previous qualitative study
carried out by our research team during 2010 (Papaoikonomou et al., 2012; Segarra et
al., 2012). This qualitative study consisted of eight focus groups with businessmen in
the Catalonian region and focused on the perceptions regarding the economic and
financial crisis. In total, 205 local businessmen had participated. The third section
included questions on the strategic response of the SMEs. The turnaround strategies’
framework by Hofer (1980) served as a guide to formulate the questions in this section.
In terms of analysis, in an effort to go beyond a descriptive study, we carry out cluster
analysis to examine whether different perceptions with regards the crisis lead to the
adoption of different types of strategic decisions. We carry out a non-hierarchical
typological analysis identifying the existing clusters of SMEs sample according to the
degree of difficulties perceived in the crisis. The cluster analysis was carried out
applying K-means clustering method, a non-hierarchical cluster analysis (Hair,
Anderson, Tatham, & Black, 1998). In this way, we can identify firms that adopt
different behaviours according to their perceptions of the crisis and also we can relate
the results obtained according to the strategic responses applied.
Findings
We first carried out the K-means cluster analysis and detected three optimal groups of
clusters regarding the perception of degree of difficulties in the context of the current
crisis for our sample. Cluster 1 is designated as a perception of medium degree of
difficulties regarding aspects listed in Table 1. Cluster 2 is designated as a perception of
below-average degree of difficulties and cluster 3 is designated as a perception of
above-average degree of difficulties in the related aspects (see Table 1). According to
the size of each cluster analysed, we can see the sample structure of the three clusters
obtained in Figure 1. As displayed in Figure 1, cluster 1 includes the majority of firms
(43% of total sample) in our sample, which indicates that most of companies in our
sample percept a medium level in terms of degree of difficulties under the context of
current crisis in year 2011. Cluster 3 includes 36 firms (37% of total sample), which
indicates a high degree of perception of difficulties encountered in the crisis. Cluster 2,
which weights 20% of sample analysed, displays that firms in this cluster group have
sensed a relatively low degree of difficulties accompanied with the crisis. From the size
of the each cluster group, we can detect that in general most of the firms (80% out of
total sample) in our sample perceives a medium or high degree of difficulties in the on
going crisis.
Figure 1. Sample cluster structure
[6]
[7]
Regarding the concrete difficulties firms encountered in times of crisis, all three
identified clusters display a consistent tendency in certain difficulties (See Table 1).
Among all cluster groups, decrease of sales and decrease of gross profits are detected as
difficulties with the highest degree of perception accompanied with the current crisis.
Inadequate or lack of infrastructure and qualified personnel are aspects identified as
difficulties with lowest degree of perception for cluster 1 and 2 in the context of crisis.
System of hiring employees and availability of suppliers are detected as difficulties with
lowest degree of perception for cluster 3 in year 2011.
In the carried out survey, we also brought up the question that if the aforementioned
difficulties encountered during the crisis were also detected before the start of the crisis
in year 2007. We relate this question to the three clusters identified and obtain the
results of the analysis in Table 2. As we can see in Table 2, the three cluster groups
detected the difficulties before the start of the current crisis with respect to qualified
personnel, employee costs and emergence of new competitors. Cluster 1 and cluster 3
with medium-high degree of perception regarding difficulties encountered during the
crisis also reveals detection of difficulties with respect to system of hiring employees.
Cluster 2 (low perception) yields rather different results compared with cluster 1 & 3
and displays detection of difficulties before the start of crisis with respect to emergence
of new competitors and no difficulties perceived at all before the start of the crisis.
Table 1. Identified cluster with respect to perception of degree of difficulties in
the current crisis
Perception of
difficulties
Cluster 1 Cluster 2 Cluster 3
Variation in number
of clients
4.44 1.68 5.03
Labour regulation 3.73 1.84 5.31
System of hiring
employees
2.44 1.63 3.44
Suppliers
2.41 1.42 3.61
[8]
availability
Employee cost 3.78 2.00 5.25
Delinquent accounts 4.93 2.89 5.67
Difficulties in
accessing credit
4.32 2.63 5.58
Lack of liquidity 4.37 2.26 5.28
Lack of
infrastructure
1.93 1.05 4.33
Relationship with
public
administration
2.44 1.58 5.28
Decrease of gross
profit
5.02 3.05 6.00
Decrease of sales 5.51 3.63 5.72
Emergence of new
competitors
3.17 1.53 5.08
Taxes 3.83 2.21 5.33
Qualified personnel 2.05 1.42 4.00
Inadequate
infrastructure
2.15 1.00 4.69
Table 2. Perception of difficulties before crisis
Percentage
of total
sample
Percentage
within Cluster
1
Percentage
within Cluster
2
Percentage
within Cluster
3
Variation in
number of clients 10% 15% 5% 8%
Labour regulation 15% 17% 0% 19%
System of hiring
27% 32% 5% 33%
[9]
employees
Suppliers
availability 10% 2% 16% 17%
Employee cost 36% 37% 16% 47%
Delinquent
accounts 20% 17% 11% 28%
Difficulties in
accessing credit 7% 5% 0% 14%
Lack of liquidity 6% 2% 5% 11%
Lack of
infrastructure 15% 7% 0% 31%
Relationship with
public
administration 17% 15% 11% 22%
Decrease of gross
profit 18% 15% 11% 25%
Decrease of sales 10% 5% 5% 19%
Emergence of
new competitors 35% 37% 26% 39%
Taxes 27% 29% 5% 36%
Qualified
personnel 40% 32% 21% 58%
Inadequate
infrastructure 16% 10% 0% 31%
Other difficulties 2% 0% 5% 3%
No 13% 10% 42% 0%
Our objective is not only to identify clusters on the basis of their perceptions with
regards the severity of the crisis, but also to understand the type of actions they adopt to
deal with it. To describe possible practices that firms adopt in times of crisis we have
adopted Hofer’s framework and have included different actions related to cost
[10]
reduction, asset reduction and revenue generation. Regarding revenue generation we
were interested in strategies that aim at short and long term revenue.
Table 3. Cost reduction approach
Cost Reduction Action
Percentage of
total sample
carrying out
the action
Percentage
within Cluster
1
Percentage
within
Cluster 2
Percentage
within
Cluster 3
Reducing energy&
phone expenses 63.5% 58.5% 42.1% 80.6%
Reducing market
research 20.8% 19.5% 21.1% 22.2%
Reducing cost in
advertising 59.4% 68.3% 26.3% 66.7%
Reducing extra salaries 49.0% 51.2% 31.6% 55.6%
Reducing participation
in pensions funds 8.3% 9.8% 5.3% 8.3%
Reducing in employee
training 12.5% 17.1% 5.3% 11.1%
Reducing
administrative costs 55.2% 61.0% 26.3% 63.9%
Reducing expenses in
R&D 22.9% 31.7% 5.3% 22.2%
Reducing costs in other
types of promotion 37.5% 41.5% 26.3% 38.9%
Flexibility employee
schedule/working days 27.1% 36.6% 15.8% 22.2%
Firing employees 61.5% 63.4% 36.8% 72.2%
Other action adopted 5.2% 2.4% 10.5% 5.6%
No action adopted 5.2% 2.4% 21.1% 0.0%
[11]
In total, firms were asked whether they adopt 32 different actions to deal with the crisis;
12 related to cost reduction, 6 related to asset reduction, 14 related to short-term and
long-term revenue generation. Firms that do not adopt any actions given in the survey
can also indicate other actions adopted or no actions adopted at all. Thus, comparing
between clusters regarding the approach of cost reduction, asset reduction and revenue
generation, we can make the following useful observations:
- Reducing costs: as shown in Table 3, among all measures for reducing costs
indicated in the survey, 63.5% of firms in our sample carry out reduction in
energy and phone expenses (61 out of 96). 61.5% of the firms carry out cost
reduction in firing employees (59 out of 96) and 59.4% of firms take measures
as reducing cost in advertising (57 out of 96). 80.6% (29 out of 36) of the firms
pertaining in Cluster 3 claim to deal with the crisis by cutting their energy and
phone bill as opposed to 58.5% and 42.1% of Clusters 1 and 2 respectively. We
notice that Cluster 3 is the group that perceives most difficulties in the current
context of crisis. Also, a higher percentage of the firms in Cluster 3 (72.2%) take
the decision to fire employees as a form to go through the crisis. On the
contrary, in Cluster 2, the cluster with the lowest degree of perceptions with
regards the severity of the crisis; only 36.8% decide to lay off employees as a
result of the crisis. Furthermore, as Table 3 shows, a higher portion of firms in
Cluster 1 and 3 reduce costs in advertising and administrative costs comparing
to Cluster 2. Consequently, we can deduce that the more negative the
perceptions regarding the difficulties of the crisis, the more firms tend to adopt
measures to cut their costs and deal with it. A large amount of firms in Cluster 3
(who perceive the crisis as more severe than the other segments of firms) prefer
to deal with the crisis through the adoption of measures such as reduction of
variable costs (energy and phone bill) and laying off employees, than selling
assets.
- Reducing assets: In Table 4, we can see that the actions adopted by the sample
related to asset reduction. 71.9% of firms (69 out of 96) in our sample have not
taken any action in terms of assets reduction at all and 15.6 of firms and 15.6%
[12]
of firms (15 out of 96) prefer to sell fixed assets. In general firms in the sample
prefer other types of strategies such as reducing costs instead of selling assets
that could seriously compromise their production capacity. However, it is
interesting to note that only firms in Cluster 3 opt to eliminate non-profitable
products and units as a way to create a healthier portfolio. Instead, regarding the
sale of fixed assets, 21.1% of firms in Cluster 2 have decided to sell machines,
equipment and other fixed assets comparing to 19.4% of firms in Cluster 3 and
9.8% of firms in Cluster 1.
Table 4. Asset reduction approach
Asset Reduction Action Percentage of
total sample
carrying out the
action
Percentage
within
Cluster 1
Percentage
within
Cluster 2
Percentage
within
Cluster 3
Selling Fixed Assets (Machines,
Equipment, Real Estate)
15.6% 9.8% 21.1% 19.4%
Eliminating non profitable products 11.5% 0% 0% 30.6%
Eliminating non profitable units 3.1% 0% 0% 8.3%
Other action adopted 0% 0% 0% 0%
No action adopted 71.9% 87.8% 84.2% 47.2%
- Revenue Generation: according to our findings, revenue generation strategies
are more common than asset reduction strategies, but less popular than cost
reduction strategies. As Table 5 demonstrates, 66.7% of all firms in the sample
decide to reduce the prices of their products to adapt to the new market situation.
The percentage is higher in Clusters 1 and 3 indicating that the perceived
severity of the crisis translates in lower cost offering to attract more consumers.
Also, almost 39% of firms in Cluster 3 adopt niche marketing and focus on
specific, more profitable segments in the market.
[13]
Furthermore, it is interesting to note that firms in Cluster 1 and 3 engage more in
revenue generation strategies such as training employees, diversification in other
sectors and investing in R&D, when compared to firms in Cluster 2.
Instead, a large percentage of firms in Cluster 2 consider other types of revenue
generation as more plausible solutions such as further promotion of existing
products and adaptation of product offering (68.4% and 42.1% respectively).
Table 5. Revenue generation approach
Revenue Generation Action
Percentage
of total
sample
carrying
out the
action
Percentage
within
Cluster 1
Percentage
within
Cluster 2
Percentage
within
Cluster 3
Reduce products’ prices 66.7% 68.3% 57.9% 69.4%
Promote existing products 54.2% 46.3% 68.4% 55.6%
Readapt existing products 36.5% 29.3% 42.1% 41.7%
Buying Fixed Assets 39.6% 51.2% 26.3% 33.3%
Focus on specific segments 29.2% 22.0% 26.3% 38.9%
Training Employees 27.1% 31.7% 15.8% 27.8%
Buying systems to save energy
etc.
21.9% 22.0% 21.1% 22.2%
Diversification to other sectors 12.5% 17.1% 5.3% 11.1%
Investing in R&D 12.5% 9.8% 5.3% 19.4%
Hiring personnel 8.3% 12.2% 10.5% 2.8%
Increasing investment in
advertising 6.3% 4.9% 15.8% 2.8%
Increasing investment in other
promotion activities 5.2% 4.9% 10.5% 2.8%
Other action adopted 1% 2% 0% 0%
[14]
No action adopted 4% 5% 5% 3%
In Table 6, the most commonly adopted measures have been identified. We can observe
that in their majority, firms tend to adopt measures to cut down on different types of
costs, instead of adopting strategies for short or long term revenue generation. In the
same table we compare the percentages of firms that adopt these measures within each
of the identified clusters.
Table 6. The most commonly adopted measures in the sample
Action Percentage of
total sample
carrying out the
action
Percentage
within
Cluster 1
Percentage
within
Cluster 2
Percentage
within
Cluster 3
1.Reducing the products’ prices 66.7% 68.3% 57.9% 69.4%
2.Reducing energy and phone bill 63.5% 58.5% 42.1% 80.6%
3.Reducing personnel 61.5% 63.4% 36.8% 72.2%
4.Reducing costs in advertising 59.4% 68.3% 26.3% 66.7%
5.Reducing administrative costs 55.2% 61% 26.3% 63.9%
6.Promoting existing products 54.2% 46.3% 68.4% 55.6%
7.Reducing extra complements of
salaries
49.0% 51.2% 31.6% 55.6%
8.Buying Fixed Assets 39.6% 51.2% 26.3% 33.3%
9.Reducing costs in other promotion
efforts
37.5% 41.5% 26.3% 38.9%
10.Readapt your products 36.5% 68.3% 57.9% 69.4%
[15]
Discussion and Policy Implications
The results of this study have led to the identification of three clusters according to the
perceived severity and magnitude of the impact of the crisis.
We notice that the participants link the crisis and the uncertainty it provokes more with
the lack of liquidity, the decrease in sales and the limited access to credit. But, other
difficulties such as finding qualified personnel, the cost of employees and the
emergence of new competitors may hinder firms’ survival, but they existed even before
the crisis. Thus, the crisis has simply accentuated their impact on the firm.
The identification of the three clusters also revealed that firms in these clusters
demonstrate different patterns of behaviour.
In general, firms of Cluster 2 with lowest sensitivity to the difficulties of the crisis
demonstrate a more passive pattern of behaviour. Besides exceptions, they adopt less
measures in all three categories; cost reduction, asset reduction and revenue generation.
Firms in Cluster 2 and 3 that perceive more strongly the negative impact of the current
crisis, seem to deal with it through the adoption of various strategies that even though
focus more on reducing costs they also engage in strategy formulation (diversification
to other sectors, low cost prices, niche marketing).
The great majority of firms in Cluster 3 clearly show how they try to become more
efficient through cutting down on all types of cost they are considered unnecessary such
as administrative costs, energy and phone bills, costs in advertising. It seems that the
more negatively perceived the impact of the crisis, the more firms tend to lay off
employees to cut down on their costs. The majority of firms in Cluster 1 (63.4%) and 3
(72.2%) choose to fire employees while they do not easily divest fixed assets (only
9.8% of firms in Cluster 1 and 19.4% in Cluster 3). This shows that fixed assets are
considered as of vital importance for the continuance of the firms, while firing
employees is seen as a way to reduce costs. At the same time, only 2.8% of firms in
Cluster 3 mention that they hire personnel to improve their production capacity. These
are interesting findings especially since the unemployment rate in Spain has reached
24.4% in March 2012, the highest rate in 18 years, according to Eurostata statistics
(http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&language=en&pcode=teilm02
0&tableSelection=1&plugin=1).
[16]
Therefore, we believe that the way decision makers in firms perceive the crisis affects
the measures adopted and the strategy formulation to deal with the crisis. For instance,
69.4% of firms in Cluster 3 have reduced their prices to adapt to a new market situation
where consumers crave for low cost offerings. Also, a high percentage of firms in
Cluster 3 choose to reduce personnel to become more cost effective. This, though, has
social implication that need to be taken into account by policy makers. Furthermore,
only 12.5% of firms in our whole sample consider investing in R&D. Even though the
percentage is higher for Cluster 3 (19.4 %), these percentages indicate that most firms
focus on cost cutting to survive and cope with the crisis, instead of innovation and
growth.
We can conclude that the most widely used response to the current crisis is to reduce
costs, especially those related to salaries and administrative costs. This results of
applying business model with a high component of labour-based instead of knowledge-
based model. Most cost reduction measures would yield an immediate result for short
term but not a strategic response for the long run. The results reveal the necessity in
firm’s structural change and proactive strategies instead of only short-term reactive
responses.
Furthermore, policy makers need to take into account the psychological component of
the crisis and understand that not all firms perceive the current economic crisis in a
similar way, neither they will react in the same way. While cost cutting may be
desirable in the current context to a certain extent so that the efficiency of the firm
increases, it should be accompanied by incentives for firms to retain or hire employees
and invest more in innovation and R&D.
References Available upon Request
doc_485743748.pdf