The empirical results of the study are presented according to the three stages of the crisis, and we describe the various crisis challenges within each stage.
Stage 1: pre-crisis prevention
Challenge of sense-making
The challenge of sense-making refers to threats to life-sustaining functions (Boin and Hart 2007). We find major challenges in this category, including economic losses, perceived duration of the crisis, and preparedness.
All participants suffered temporary closedown of the business and reported economic losses (ranging from MOP100,000 to MOP500,000, or from USD12,500 to USD62,500) during the crisis. The most significant economic impact was the loss of customer flow (demand constraint) instead of cash flow difficulty (financial constraint). The firms expect that adverse effects will last far beyond the period of the actual COVID-19 pandemic. Initially, they estimated a recovery time ranging from 3 to 36 months, but in the second interview, the estimates increased to 18–48 months. The long timespan of the COVID-19 crisis makes the respondents think that strategies that worked in previous crises may not work this time.
“The COVID-19 does not resemble any other crises that we have encountered before. We cannot see an end to it. The pandemic may be around for one or two years or even much longer” — C.
Leaders of firms B, C, and F are more prepared for the crisis. These firms have a long history, a larger number of employees, and more government regulations. The leaders, having experienced previous crises, use the experience to develop a crisis management strategy. Compared with previous crises such as flooding and customers’ complaints, the leaders of the participating firms failed to detect the early signals of the epidemic until mid-January 2020.
“The COVID-19 comes up quite unexpectedly, and there is no early warning signal. Our operation is seriously disrupted”—B.
Without a formal crisis plan, the SME firms have a weaker market position, fewer resources, and lacking a sense of crisis.
“We do not have any structured crisis management plan as we do not think it is helpful. It would not make a big difference as COVID-19 is a pandemic, and the economic consequence is unavoidable” —D and E.
Firms B, C, and F operate in highly regulated industries and must have a structured crisis management plan to file with the regulators. Periodic testing of the plan involving various stakeholders such as employees and customers is also required.
“We consider conducting periodic testing is important for our staff to react promptly and appropriately in crises”—C.
However, the potential of a sound crisis management system on preventing events such as COVID-19 or reducing potential losses is uncertain. All respondents believe that even structured crisis planning and the ability to sense the crisis at an early stage would not have helped much in this crisis, unlike in other classes of crises. However, previous research has found that small firms with better preparedness and sense-making may recover sooner from stress (Irvine and Anderson 2006).
Stage 2: crisis management
Challenge of making decisions
Once managers identify the crisis, they also start making decisions. Our data suggest that SME managers seek opinions from other persons and institutions before making decisions and have emphasized short-term strategies. These strategies tend to focus on achieving economic sustainability through increased engagement and planning procedures, slimming operations, and the introduction of flexible HR practices, diversification, and new digital strategies.
Most of the firms interviewed involve both internal and external stakeholders in the crisis decision process. Of the six firms, firm D is the only one that does not involve external stakeholders. Nevertheless, none of them indicate involving an outside crisis expert in the existing crisis mechanism, as in Ruff and Aziz (2003).
“When making decisions during the outbreak, we consult our staff at different levels. It is a group decision” —B, C, and F.
“We also consult external stakeholders such as the regulators, customers, and suppliers in the decision process” —C and F.
All participating firms, except firm D, emphasize crisis planning procedures. From the follow-up interviews, we find that these firms show significant signs of recovery 4 months after the outbreak.
“We have provided a formal crisis management manual to our staff” — B, C, E, and F.
“We update crisis management issues in our monthly staff meetings”—B and C.
The leaders of the six firms quickly re-organize operation procedures, namely changing operating hours and reducing costs.
“In March, the number of infected has become stable, and we re-open our business but reduce the operating hours”—A, B, and F.
“We stop buying inventories since January as the customer flows have significantly dropped”—A.
“We significantly cut down our labor costs and other operational costs by using flexible HR policies and reducing operating hours”—C and F.
Firms recently set up, especially those founded by young entrepreneurs and in small size, show more flexibility and prompt reactions during the COVID-19 outbreak. Five small firms founded by young entrepreneurs quickly change their HR policies.
“Having discussed with our employees, we give them the options of working at home and flexible working hours”—B, C and E.
The pandemic also inspire the participating firms to reform their HR policies in the long run. The leaders foresee that the market will be different, and what worked in the past may not work in the future. The firms cut down their reliance on foreign workers and recruit new local workers with information and technology (IT) skills.
“After the outbreak, we will focus more heavily on takeaway and food delivery. We may need to hire more part-time helpers and terminate some full-time staff. This can help cut down labor costs by around 20%”—F.
“In the future, we would like to hire employees who are well equipped with IT skills” —B and E.
We find the emphasis on product- and industry- diversifications (four out of six) regarding marketing strategies. Some firms, such as A, C, and F, intend to diversify into completely different industries that do not rely on tourist flow. The leaders are concerned that the pandemic may last longer than expected, significantly reducing demand in the tourism-related sector. This trend has not been detailed in the prior literature.
“In the long run, we intend to diversify the operating risk by entering new industries such as food and beverage, and arts and entertainment, which are not solely relied on tourist flows” —C.
“We are thinking of exploring new market sectors, such as providing professional coaching services for indoor training” —A.
“As many of our managers and lecturers are well trained in business and management areas, we have established a consulting firm in May to provide business consulting services for SMEs” —B.
Three of the firms have also reduced inventory and explored new products.
“As the sports stadiums are locked down, the demand for badminton supplies drops dramatically. In view of this, we explore new products such as indoor sports equipment, massage machines, and towels. This helps maintain sales at 40% of the normal sales level and allows us to survive”—A.
All the interviewed firms have enhanced their networking with customers by increasing advertising with technology (using e-channels such as Facebook and WeChat) and offering discounts during the crisis.
“We use e-channels such as Facebook and WeChat to advertise and promote our products since February or March, and we successfully draw the attention of our customers. We intend to rely more heavily on this new advertising and promotion channel in the future” —A and D.
A few firms have also reduced prices during the outbreak as a way to attract customers.
“We give an additional 15% discounts to our customers since March, and the strategy helps restore sales revenue by 20%”—A and F.
“We give a significant discount for long-stay customers, which helps attract companies who need to accommodate their foreign workers. The discount policy is extremely helpful for our survival. Room sales are higher than that before the outbreak” —C.
These strategies are also likely to evolve in the future. Some firms are interested in changing their business model to expand into e-commerce (firms A, B, and D).
“Because of the outbreak, we deliver some of our courses online through Zoom. This inspires us to develop our online course department in the long run so that students who live far away can easily join our online courses at their convenience” —B.
Of the six firms, two intend to invest in hardware (health and safety equipment and redecoration). Two firms are interested in using SME loans from the government. Three of them (firms A, C, and D) indicate that loan repayments would exert financial pressure on the organizations.
“We have applied for the special loan for SMEs from the Macao Economic Services. We intend to repay the loan within two or three years” —A and D.
“The SMEs loan may not be too helpful as it creates additional financial stress in the coming years” —C.
Challenge of making meaning
During a crisis, small firms need to make decisions and ensure that people understand and accept those decisions without damaging their reputation. Therefore, timely and effective communication is paramount. Except for firms A and F, the leaders have maintained timely communication with their employees throughout the crisis. Firms have used social media such as WeChat, WhatsApp, and Zoom, to hold staff meetings. The leaders find these communication channels effective and efficient and indicate that they will continue to use them in the future.
“We hold 30-minutes live chats twice a week since mid-January for our staff to communicate with the management” —E.
“During the outbreak, we conduct our management meetings through Zoom, WeChat, and WhatsApp, and we find it highly efficient. We decide to go on with this even after the outbreak” —B, C and E.
Besides communicating with their employees, most participating firms have maintained frequent communications with external stakeholders, namely customers, to disseminate company policy promptly. Firms B, C, and F also work closely with the regulatory agencies. Firms A, C, and F negotiate with their credit suppliers for extended credit periods.
“The suppliers are very considerate and give us an additional one-month credit period since February”—A, C and F.
Challenge of terminating
After almost 9 months, the COVID-19 pandemic has yet to end. However, leaders and the public have started to interpret the long-term crisis as becoming normal. Although this “normal” situation is still evolving, it also signals the intention to return to normalcy. All participating firms believe that the most vital task in the aftermath is to restore public confidence. This can be achieved by the cooperation of the government and society at large.
“Restoring public confidence is most vital for recovery after the outbreak. Macao is famous for its gaming and tourism industries. Whether tourists find it safe to visit the city would have [a] significant impact on the recovery of the economy” —C.
“There is nothing much we can do to recover from the crisis. The market relies heavily on the recovery of public confidence” —D.
As the pandemic is enduring longer than expected, the leaders have found that they must make decisions over a relatively long span. The leaders believe that it is more important to act swiftly and gradually cope with the development of the pandemic. As the impact of the crisis is the continued low demand, firms have adopted strategies to achieve resilience, such as unusual non-paid leave for their employees.
“For employees residing in Chinese mainland, we ask them to stay in Macao or take no paid leave if they decide to stay in Chinese mainland”—C and F.
Challenge of organizational learning
The managers’ learning goal orientation and knowledge acquisition result in long-term advantage, whereas practice-based and proximal learning have a short-term effect on performance (Battisti et al. 2019).
All interviewed firms express the intention to invest in technology. The leaders foresee that technology will contribute significantly to HR management and marketing in the post-crisis era. Except for firm F, all the firms intend to explore new market opportunities with technology. However, small firms are more hesitant to make large investments in learning.
Five participant firms are willing to invest in learning crisis management. Firms B and C, which have adopted learning in their survival strategies, seem to have recovered faster than others.
“Our hotel plans to increase investment in training for crisis management and stress management, with an estimated annual investment amounting to MOP 200,000 (USD25,000)” —C.
“We switch our operation to online sales during the outbreak and find it helpful to maintain sales revenue. In the future, we will focus more on online sales mode. Our staff need to be trained in e-commerce and technology to cope with the change in our business model” —A and D.
“The COVID-19 outbreak has significantly changed the business model, and we intend to invest in technology, such as to film our products and conduct more online live chats” —A and D.