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Paradigm Shift with New Business Model using Digital Technologies to Reshape the Growth of SMEs in COVID-19 Pandemic

Professor H.M.S. Priyanath, Department of Economics and Statistics, Sabaragamuwa University of Sri Lanka. Mr. R.V.S.P.K. Ranatunga, Senior Lecturer, Center for Computer Studies, Sabaragamuwa University of Sri Lanka
Small and Medium Enterprises (SMEs), which make a significant contribution to the Sri Lankan economy, have been faltered due to the COVID-19 epidemic lock down situation. Relying on limited buyers and sellers in a traditional business model, these businesses have lagged far behind in the face of the COVID-19 pandemic. This article attempts to discourse an innovative business model based on digital technology in the perspective of New Institutional Economics in order to reshape the growth of SME in COVID 19 pandemic situation.
The business theory commonly explained that any business should consider three assumptions or conventions that influenced while their operations, such as assumptions pertaining to the business environment, assumptions accompanied by achieving the mission, and conventions related to competencies or skills and resources required to reach the mission. A business model presents the benefits that a business provides to its customers and partners, as well as how benefits from outside in the form of revenue flow into the business. Business models thus represent the present or future state of the business and point out simple or easy-to-understand models of how to communicate with others in the same field regarding a successful business. A business model framework helps organize management and improve some commonly agreed elements such as relationships with customers, customer segments and channels, key partners, activities, resources, value proposition, and revenue streams. The COVID-19 pandemic has revealed significant shortcomings in the models and operations of today’s SMEs. When there is no confidence in the business environment, organizations can rethink their three basic assumptions set out in business theory.
Accordingly, researchers evolved some practical considerations for developing a completely enhanced business model. Some of the earlier concepts are evolving mainly due to technological advancement, achieving social/user acceptance of previous ideas, generating economies of scale, and disruptive and development-based innovations are those considerations. Disruptive innovations are defined as relatively passive concepts and the progression of a system, process, or event, as usual, or as expected, like the COVID-19 pandemic. The global COVID-19 pandemic is a passive object because it has no direct effect on the institutions of its occurrence or spread. However, they need to act accordingly and rethink their business models.
COVID-19 pandemic in many countries must maintain equilibrium between the restrictions and protective equipment for their economies. These limitations and their duration affect regardless of the scope of the business and the nature of the operation. During this period, relief measures aimed at protecting employment and ensuring the continuity of production and service activities are considered short-term. Therefore, those programs focus on protecting current businesses. The long-term effects of the pandemic on economic activity have not yet been brought under control. Financial assistance as a monetary relief tool should be accelerated, and adequate attention should be paid to allowing SMEs to survive. However, financial aid is not a guarantee of survival. We need to take into account the new media of consumer services, such as innovative services, new models of service delivery, entertainment, and new partnership options in communities, that is, fulfilling all the valuable proposals that customers want and expect. Appropriate new institutional capabilities are needed to take advantage of opportunities effectively. In this regard, they must be ready for innovation and operate with an entrepreneurial mindset.
In the operations of SMEs, it is essential to pay more attention to research to identify common scenarios relevant to the implementation of technologies. Further research is needed to develop appropriate and viable methods for designing sustainable business models. Subsequent applications of Transaction Cost Economics provide one of the clear paths for this. As pioneer scholars in transaction cost economics point out, it is essential to re-examine the extent to which opportunism, a fundamental feature of transaction cost theory, fits into the current economic climate. Opportunism was a major theme of marketing research in the first decade of the new millennium and will be a common factor in businesses based on the current pandemic situation. Because it is based on the social benefits of personalization related to human nature, it cannot be underestimated or abandoned with the new technological world.
However, companies with prominent positions are created to minimize opportunism. The defense against opportunism here is to develop a hierarchy by avoiding contact with the market. But the new economic mechanisms are cryptic and are aimed at eradicating opportunism. Consumer opportunism, in particular, can be cited for this. The consumer is the most critical link and handler of the future economic mechanism built on technological tools. It differs from the traditional method. Although the manufacturing companies and the market traditionally control the consumer, the market is governed by the consumer in the new mechanism. Thus, the main feature of the relationship between the consumer and the market is virtual. The importance of uncertainty in something unreal is very high.
With the proliferation of digital tools such as the internet, personal computers, video cameras, mobile phones, and the ability to use them equally, new economic organizations emerged. For example “Crowd Sourcing,” which is the process of obtaining information, ideas, opinions, roles, and innovations from a large number of people over the Internet. These new economic organizations as “social production” can be formed under new technological tools, such as ‘Modularity’ (free units) and granules. These social products are based on a highly cooperative system grounded on a social acceptance that encourages greater than monetary benefits and is an alternative mechanism for making products based solely on information and not on markets and companies. An example of this is Wikipedia, the world’s largest body of knowledge.
This concept can be applied to reshape the growth of SMEs. It is more appropriate to illustrate with an example. Let us take the production and distribution of vegetables and fruits in Sri Lanka, which is in a state of chaos in the face of the pandemic. The industry consists of several modules, from the beginning of the cultivation of vegetables and fruits to the consumer’s final product. All the main functions are modular, and they are accessible units. Seed supply, fertilizer supply, production, and distribution are the main stages, and if required, these components can be further subdivided into sub-modules. Each of these modules comprises individual units that can be freely linked to modules to produce “social products.” Large top institutions in Sri Lanka are already using this concept.
The pandemic has allowed SMEs to rethink their business models, business strategies, and operations. Small and medium entrepreneurs need to adopt new business strategies to revitalize themselves or their services and find technology-based opportunities to digitize business operations and remote operations. As in the developed world, many SMEs in Sri Lanka do not embrace digital technology, which means switching to virtual operations to maintain competitiveness, productivity, and business acumen.
Other emerging South Asian countries like ours have already implemented a technological, economic paradigm of digitization, robotization, and smart business establishment. Sri Lanka should move in that direction as soon as possible. Many new digital technologies can be seen as disruptive to some market processes but, at the same time, a tool for success for the majority in the pandemic and post-pandemic situation.
SMEs need to focus on technologically driven and socially connected transformation processes on their existing traditional business model, and business network building should be done first. Social media and mobile technologies are often chosen as instruments for transforming the communications channels and/or providing services in most countries. There are several reasons for this.
The use of more sophisticated computer-aided technology, the complexity of the technology, the lack of skills among the public in its application, the length of time it takes to make it functional, the need for additional equipment, etc. Because of this, they are not widely used by the general public. Therefore, the widespread use and experience of widely available social media and mobile technologies should meet the new requirements of SMEs and their consumers. The tendency to develop more flexible technological solutions with shorter implementation periods and activate expected value proposals will enable SMEs to support efforts to respond quickly to disruptions caused by the pandemic.

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