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Chapter 2

REVIEW OF RELATED LITERATURE AND STUDIES

This chapter presents the Foreign Literature, Local Literature, Foreign Studies,

and Local Studies.

Foreign Literature

Aldrich & Martinez (2001) stress the significance of theories in explaining

phenomena by stating that theories as interpretive lenses serve to profoundly

influence our capacity to understand phenomena. Taking this matter further, Hair et al

(2006) point out that a “theory” is a systematic set of relationships providing a

consistent and comprehensive explanation of phenomena. Cooper & Schindler (2001,

2008) contend that, in practice, a “theory” is a researcher’s attempt to specify the

entire set of dependence relationships explaining a particular set of outcomes. For this

research, the outcome is the failure of small businesses. According to Cooper &

Schindler (2001, 2008), the analysis of the causes of failure should enhance the

understanding of the failure phenomenon. These authors succinctly assert that the sets

of interrelated concepts, definitions, and propositions that are advanced to explain and

predict phenomena are called “theories”.

According to Kerlinger & Lee (2000), “theories” explain phenomena through

a combination of definitions, propositions and interrelatedness between variables.

These researchers note that theories can be derived from one or more of the following

sources: (1) prior empirical research; (2) past experiences and observations of actual

behaviour, attitudes, or other phenomena; and (3) other theories that provide a

perspective for analysis. They opine: The basic aim of science is theory. Perhaps less
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cryptically, the basic aim of science is to explain natural phenomena. Such

explanations are called ‘theories’ (Kerlinger & Lee 2000).

According to Silverman (2001), theories are the impetus for any research. This

research is informed among others by the ideas from a few researchers (Zikmund

2003; Hair et al 2006) who opine that prediction and understanding or explanation are

the two purposes of theory. In line with the aforegoing assertions, Sayer (2000)

confirms that the role of theory is to order, explain and to predict. Indeed, when

conducting research one cannot proceed without identifying some theories and

concepts which provide frameworks for the research for prediction and explanation of

data collection, analysis and for testing hypotheses. Among others, theories function

to give rigour to the research as Dollinger (1999) and Cooper & Schindler (2001)

point out that a good theory tells the user how things and events are related – which

are likely to be external causes and independent, and which are likely to be internal

results and controllable. A good theory also tells us the probable direction of

causality.

According to Brush et al (2001), each resource choice has an important

implication for business survival and growth. These choices are expected to show

negative consequences if the wrong resources are acquired, if they do not fit the

opportunity, or waste other productive resources. In particular, two salient resources

whose absence is reported to contribute to failure of SMMEs are financial resources

(Greene & Brown 2001:) and human resources (Cooper, Gimeno-Gascon & Woo

1994:).Thus, according to the resource-based theory, firms can gain sustainable

competitive advantage over their competitors if they can obtain a resource supply that
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is unique when compared with their competitors. 61 Ventures that are unable to

protect their resource base face high prospects of failure.

Wickham (2001) and Rwigema (2005) define an “opportunity” as the gap left

in a market by those who currently serve it. It represents the potential to serve

customers better than they are being served at present. 62 In discussing the role of

opportunities in small business failure, types of opportunities are discussed first.

Local Literature

Around 88% of small and medium-sized enterprises are still confident of their

growth in the next three years, according to a survey conducted by SAP-SE or SAP

and Oxford Economics titled “Digital Resilient, and Experience-driven: How Small

and Midsize Organizations Can Prepare for the New Economy.” Moreover, 89% of

the SMEs also adjusted their employees to work remotely or work at home due to the

tough lockdowns implemented in the past months to supposedly help curb the number

of COVID-19 infections.

For the rest of the Asia Pacific region, SAP continued to recognize the Philippines as

one of the fastest-growing markets in the world amid the global health crisis.

Sixty-nine percent of these enterprises across the region have invested in IT and

digital solutions to cope with the new working conditions.

Of these, 79% of local SMEs have also implemented the same changes for their

workers.

SAP offered two solutions for local SMEs to help improve their businesses—the SAP

Business One and the SAP Business ByDesign.

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“We want SMEs to stay resilient during these uncertain times and be prepared to take

in the demands when we recover post COVID19. These intelligent solutions would

help SMEs gain become more strategic, while remaining agile and flexible, as well as

position them for growth,” said Edler Panlilio, SAP Philippines Managing Director.

SAP is global cloud software and Oxford Economics is a global economic forecasting

and analytic firm.

Both private institutions surveyed 2,000 executives in 19 countries, and analyzed the

response of the top-performing firms among the participants.

The Philippines entered into recession last August wherein the country’s gross

domestic product (GDP) growth rate declined by 16.5% in the second quarter of

2020, which was the lowest recorded quarterly growth since 1981, according to

the Philippine Statistics Authority.

Since the 1980s, small business owners and entrepreneurs have been receiving greater

recognition as drivers of economic growth. Recently, several studies (Forsman 2011;

McKeever, Anderson, and Jack 2014) have reported that long-term economic growth

and prosperity require participation from entrepreneurs. Both experts and

governmental authorities opt for fostering entrepreneurship as ‘an appropriate

mechanism to face the impacts of the economic crisis’ (GEM 2014, 100).

Over the last two decades, extensive literature on the importance of small businesses

in the economy has consistently shown that the creation of new businesses drives

economic prosperity. As well as playing a crucial role in increasing the competition of

emerging sectors, new small businesses are critical for economic growth and

innovative capacity in many regions. Job creation, economic growth and poverty
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reduction are usually the main political interests in entrepreneurship (Battilana and

Casciaro 2012; Willis 2011).

Small businesses transform and develop communities. Entrepreneurs create ways to

connect resources and growth across cultures, policy contexts, economic conditions

and political situations that differ from a region to another (Carrasco-Monteagudo and

Buendía-Martínez 2013). They must create strategies that will ultimately resolve

major economic and social challenges and, in this sense, improve the quality of life of

the region where they are located (Godar, O’Connor, and Taylor 2005).

The current special issue represents an important contribution to research findings in

the field of small businesses and their role in economic and social development. This

special issue stimulates research in this topic and leads to a better understanding of

knowledge.

Foreign Studies

Christopher A. Neilson, John Eric Humphries, Gabriel Ulyssea stated that

Micro, small, and medium enterprises are being severely affected by the COVID-19

pandemic. As a response to the severe economic implications of this crisis, state and

federal governments around the world are enacting relief programs to aid small firms,

which include special credit lines, forgivable loans, and job retention schemes. This

project combines a longitudinal survey and an experiment design to, on one side,

document how small businesses have been impacted and generate evidence about the

role of information frictions in their utilization of government assistance. On the other

side, it evaluates how access to different forms of information impacts business

owners’ use of government economic relief programs (E.g. loans, subsidies, tax

discounts, etc.), and if participation in such programs affects future business decisions
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such as laying off workers or closing. In the experiment, firm owners will randomly

receive information about the available economic relief programs for small businesses

in their countries in three different flavors: (1) an informational email with a summary

of the existing programs, (2) an informational email with the summary plus an one-to-

one telephone session where firm owners will be walked through the characteristics

and application process, and (3) an informational email with the summary plus a

digital assistant (chatbot) that will guide firm owners through the characteristics and

application process. In this way, this study will provide valuable lessons on how to

increase small businesses take up of government programs and the cost-effectiveness

of different strategies.

Robert Fairlie stated that although research on small businesses and

entrepreneurship is growing rapidly, there are very few national data sets that provide

information on ownership with additional information on demographic characteristics

of the owners. Using microdata from the basic monthly files of the CPSs, I measure

self‐employed business ownership at the individual owner level. These surveys,

conducted monthly by the US Bureau of the Census and the US BLS, are

representative of the entire US population and contain observations for more than

130,000 people.

The CPS has been conducted monthly since 1940 and is the underlying source of

official government statistics on employment and unemployment. Data are collected

by personal interviews. The data cover all persons in the civilian noninstitutionalized

population of the United States living in households. The CPS is the only source of

monthly estimates of employment, self‐employed persons, wage and salary

employees, and unemployment. Although the main purpose of the CPS is to collect
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information on the employment situation, a secondary purpose is to collect

information on the demographics of the population.

Based on Catherine Buffington, Carrie Dennis, Emin Dinlersoz, Lucia Foster,

Shawn Klimek, Emin Dinlersoz, Lucia Smith Foster research that in response to the

novel coronavirus (COVID-19) pandemic, the Census Bureau developed and fielded

an entirely new survey intended to measure the effect on small businesses. The Small

Business Pulse Survey (SBPS) will run weekly from April 26 to June 27, 2020.

Results from the SBPS will be published weekly through a visualization tool with

downloadable data. We describe the motivation for SBPS, summarize how the content

for the survey was developed, and discuss some of the initial results from the survey.

We also describe future plans for the SBPS collections and for our research using the

SBPS data. Estimates from the first week of the SBPS indicate large to moderate

negative effects of COVID-19 on small businesses, and yet the majority expect to

return to usual level of operations within the next six months. Reflecting the Census

Bureau’s commitment to scientific inquiry and transparency, the micro data from the

SBPS will be available to qualified researchers on approved projects in the Federal

Statistical Research Data Center network.

Alexander W. Bartik, Marianne Bertrand, Zoe Cullen, Edward L. Glaeser,

Michael Luca, and Christopher Stanton research says that to explore the impact of

coronavirus disease 2019 (COVID-19) on small businesses, we conducted a survey of

more than 5,800 small businesses between March 28 and April 4, 2020. Several

themes emerged. First, mass layoffs and closures had already occurred—just a few

weeks into the crisis. Second, the risk of closure was negatively associated with the

expected length of the crisis. Moreover, businesses had widely varying beliefs about
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the likely duration of COVID-related disruptions. Third, many small businesses are

financially fragile: The median business with more than $10,000 in monthly expenses

had only about 2 wk of cash on hand at the time of the survey. Fourth, the majority of

businesses planned to seek funding through the Coronavirus Aid, Relief, and

Economic Security (CARES) Act. However, many anticipated problems with

accessing the program, such as bureaucratic hassles and difficulties establishing

eligibility. Using experimental variation, we also assess take-up rates and business

resilience effects for loans relative to grants-based programs.

Naveen Donthu; Georgia State University, United States, Anders Gustafsson;

BI Norwegian Business School, Norway stated that The COVID-19 outbreak is a

sharp reminder that pandemics, like other rarely occurring catastrophes, have

happened in the past and will continue to happen in the future. Even if we cannot

prevent dangerous viruses from emerging, we should prepare to dampen their effects

on society. The current outbreak has had severe economic consequences across the

globe, and it does not look like any country will be unaffected. This not only has

consequences for the economy; all of society is affected, which has led to dramatic

changes in how businesses act and consumers behave. This special issue is a global

effort to address some of the pandemic-related issues affecting society. In total, there

are 13 papers that cover different industry sectors (e.g., tourism, retail, higher

education), changes in consumer behavior and businesses, ethical issues, and aspects

related to employees and leadership.

Local Studies

Based on Asian Development Bank, while critical in safeguarding public health

against the spread of COVID-19, the enhanced community quarantine and other
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quarantine/lockdown measures (henceforth referred to as ECQ) dramatically limited

business activities throughout much of the Philippines. After the 16 March1 lockdown

of the NCR, CALABARZON, and other regions, most Philippine enterprises faced

the immediate closure of business or limitation of business operations. According to

the survey, 65.9% of enterprises surveyed temporarily closed their business after the

ECQ came into effect (Figure 9). Limited operations continued in 29.1% of the

enterprises surveyed. Among those with limited operations, one-fifth reported more

than 50% of their business continued, while 78.4% reported less than 50% of their

business operational (Figure 10). Only 4% of those surveyed remained fully open.

Meanwhile, 1.1% closed permanently. There was a clear correlation between business

closures and firm size. Temporary closures were most widespread among

microenterprises (71.2% of total microenterprises), followed by small enterprises

(63.2%), medium-sized enterprises (57.4%), and large enterprises (53.8%). Among

large enterprises, 7% remained fully operational while 38.2% stayed partially open.

The smaller the firm size, the lower the share of businesses remaining open: medium-

sized (5.1%), small (3.7%), and microenterprises (3.3%). The same was true for those

partially open: medium-sized (36.3%), small (32.5%), and microenterprises (24.1%).

Only a small fraction of enterprises surveyed permanently closed: 1.3% of

microenterprises, 0.6% of small, 1.2% of medium-sized, and 1.1% of large

enterprises. By sector, wholesale and retail trade was the most affected by the ECQ,

with 21.8% temporarily closed, followed by accommodation and food services

(16.9%) and other services (14.7%). Wholesale and retail trade accounted for 21.5%

of enterprises maintaining limited operations, followed by “other sectors” (14.7%)

and information and communication (11.5%). When looking at enterprises with

limited operations in detail, 80.0% of enterprises engaged in wholesale and retail trade
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reported their business not more than 50% operational. Meanwhile, 20.0% of

enterprises in wholesale and retail trade reported more than 50% operational. For

accommodation and food services including the tourism industry, 89.8% of firms in

this category reported not more than 50% operational while 10.2% reported more than

50% operational. For other services, 68.9% of firms in this category reported not more

than 50% operational while 31.1% reported more than 50% operational. For

information and communication, 63.9% of firms in this category reported not more

than 50% operational while 36.1% reported more than 50% operational. The

wholesale and retail trade and information and communication sectors accounted for

the same share of fully operating enterprises (16.3%), followed by construction

(15.3%). Meanwhile, 25.9% of those permanently closed were in wholesale and retail

trade, followed by accommodation and food services (22.2%) and information and

communication (11.1%), although a small number of enterprises identified in this

category. 1 Throughout the report, references to specific months (for example,

February, March, and April) refer to 2020 unless otherwise indicated. • Two-thirds of

firms surveyed immediately suspended business activity, while those still operating

cut operations by half. • The smaller the firm size, the lower the share of businesses

remaining open. • Wholesale and retail trade was the sector most adversely affected

by the ECQ. • Half of firms temporarily closed were based in the NCR. 8 The

COVID-19 Impact on Philippine Business By region, NCR-based firms accounted for

49.9% of temporarily closed enterprises, followed by firms in CALABARZON

(14.3%) and Central Visayas (7.2%). Meanwhile, 61.2% of those operating fully were

in the NCR, followed by firms in CALABARZON (15.3%) and Central Visayas

(7.1%). Enterprises with limited operations were concentrated in the NCR (47.5%),

followed by CALABARZON (13.4%) and Central Visayas (8.0%). For NCR-based

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firms, 66.3% temporarily closed their business, 4.9% remained fully open, 27.9%

opened but with limited operations, and 1.0% closed permanently.

MicroSave Consulting (MSC) stated that the extended community quarantine

imposed by the government to contain the spread of COVID-19 has adversely

affected micro, small and medium enterprises (MSMEs) in the Philippines. This

report highlights the nature and extent of the impact of COVID-19 on the cash-flows,

business operations, and supply chains of these MSMEs. It delves deeper into the

coping strategies they adopted to mitigate the effects of this disruption. The report

also provides recommendations for policymakers and financial service providers to

help accelerate the recovery of the MSME sector.

The research by Apple Barretto states that there is no doubt that the economy

as a whole is now on the brink of a recession. Several business industries have taken a

much slower pace due to the global pandemic affecting the flow of supply and

demand in the country.

Still, as COVID-19 continues, many Filipinos may lose their jobs. Industries like

BPO, tourism, and aviation sectors have laid off their employees due to a lack of

financial resources to support them. Meanwhile, in terms of construction, it is widely

known that the infrastructures of the “Build, Build, Build” program are reliant on

China for funding. Having the pandemic around paused not only the construction

itself but also the compensation of the workers involved. Many of whom are daily

wage earners.

Additionally, there are still several business buildings that are yet to be finished. The

pause in construction due to COVID-19 may postpone future economical endeavors.

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According to Rappler, the National Economic and Development Authority (NEDA)

have estimated that the Philippines’ gross domestic product (GDP) may be as low as -

0.6% this year.

It is estimated that the Philippines may lose between P276.3 billion and P2.5 trillion

based on how long the pandemic will ensue. In the worst-case scenario, the economy

may slow down to a recession as labor supply drops to 19.7%. On the other hand,

labor supply may only drop to 7.4% with most of the industries thriving if the country

successfully combats the virus in the second quarter of the year. [8]

According to the research of PwC in the midst of the current COVID-19 pandemic,

global markets are severely disrupted. Businesses are forced to explore innovative

solutions to overcome the growing negative implications of this unprecedented crisis.

Due to various quarantine measures imposed by governments around the world,

certain industries have been affected much more than others.

As only businesses involved in the value chain of essential commodities are

operational, the rest of the industries need to evaluate how they will respond to

business unusual. The existing business continuity plans may not be sufficient to

address the fast-changing variables presented by COVID-19.

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References:

Aldrich & Martinez (2001)

[Link]

Kerlinger & Lee (2000)

[Link]

Silverman (2001)

[Link]

Brush et al (2001)

[Link]

Wickham (2001) and Rwigema (2005)

[Link]

[Link]

poll-says-small-businesses-in-the-philippines-bullish-of-growth/

GEM (2014) [Link]

Battilana and Casciaro (2012)

[Link]

[Link]

Christopher A. Neilson, John Eric Humphries, Gabriel Ulyssea

[Link]

study
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Robert Fairlie [Link]

Catherine Buffington, Carrie Dennis, Emin Dinlersoz, Lucia Foster, Shawn Klimek,

Emin Dinlersoz, Lucia Smith Foster [Link]

Alexander W. Bartik, Marianne Bertrand, Zoe Cullen, Edward L. Glaeser, Michael

Luca, and Christopher Stanton [Link]

Naveen Donthu; Georgia State University, United States, Anders Gustafsson; BI

Norwegian Business School, Norway

[Link]

Asian Development Bank Despite pandemic, poll says small businesses in the

Philippines bullish of growth ([Link])

MicroSave Consulting (MSC) Full article: Small business and entrepreneurship: their

role in economic and social development ([Link])

Apple Barretto [Link]

Rappler [Link]

[Link]