Small and medium enterprises are more vulnerable to natural hazards…approximately 240,000 small businesses in 32 provinces were affected by the 2011 floods in Thailand alone. In total, the event resulted in nearly USD 50 billion in estimated losses.
Small and medium enterprises account for around 90 percent of all businesses in the Asia-Pacific but operate in a region that is hit by more than 70 percent of natural disasters worldwide. The APEC Bulletin spoke with Dr Li Wei-sen, Co-Chair of the APEC Emergency Preparedness Working Group, to learn how APEC economies are working to ensure that firms in the sector are in a position to weather the effects of an emergency.
APEC Bulletin: What key problems do small businesses typically encounter in an emergency? Are they very different across different sectors or types of SMEs?
Dr Li: Compared to large international companies, small and medium enterprises are more vulnerable to natural hazards due to resource, planning and experience gaps. Post-disaster data helps to illustrate this point. Approximately 240,000 small businesses in 32 provinces were affected by the 2011 floods in Thailand alone. In total, the event resulted in nearly USD 50 billion in estimated losses.
The diverse characteristics of SME business operations make it more difficult to formulate a one-size-fits-all solution. Empowering SMEs to prepare for and respond to natural disasters is therefore essential to improving the sector’s disaster resilience.
A recent private sector survey puts the critical nature of this issue into greater context. It ranks natural disasters as the 16th most significant risk to business and the sixth most important driver of stronger risk management.
APEC Bulletin: When SMEs face challenges as a result of an emergency, what are the implications for economies in the region and global supply chains?
Dr Li: SMEs are the backbone of the global economy and closely linked to people’s livelihoods. When operations are disrupted by a disaster, SMEs could potentially lose their competiveness or even face business closure.
The challenges that SMEs face can destabilize entire industries. Auto parts and information and communications technology supply chains were both severely affected by the 2011 Thai floods due to a shortage of critical components.
Shocks such as this are a serious threat to trade and economic growth not just in areas directly affected by a disaster but across the region and globally.
APEC Bulletin: What is business continuity planning and why is it important?
Dr Li: Business continuity planning is not a new idea. But it has traditionally focused on financial or information and communications technology disruptions and their effects on business operations.
Since 2011, more industries have begun to consider natural disasters and the risk they pose to employees, suppliers and customers.
Business continuity planning can help business owners prepare more effectively. It involves knowing the potential risks associated with natural hazards, identifying internal and external vulnerabilities, and organizing teams to cope with them.
APEC Bulletin: How well known is business continuity planning in the APEC region? Is it commonly practiced in the private sector and among small businesses, in particular?
Dr Li: The Asian Disaster Reduction Center conducted research on the impact of the earthquake and tsunami that struck Japan in March 2011. It found that of 337 companies surveyed, 90 percent were bankrupted by “indirect loss or damage” due to production and supply chain disruption. Less than 40 percent of the 229 SMEs surveyed had business continuity plans in place.
A second study was conducted that year in which 267 firms – including large firms and SMEs – in 17 APEC member economies were asked about business continuity planning.
According to the survey findings, 67 percent of respondents said they “don’t know about business continuity planning” or “don’t have a business continuity plan.” Among small and medium enterprises that participated in the survey, the figure jumps to 83 percent.
APEC Bulletin: What are the main challenges to business continuity planning among SMEs?
Dr Li: Many businesses in the sector lack plans to cope with risk identification, preparedness, emergency response and business resumption. Some owners and managers lack even a basic understanding of disaster risk reduction.
Education is the key to addressing these gaps and improving business continuity in the event of a disaster. To facilitate this process, it is necessary to identify useful sources of information and communication tools. These can improve SMEs’ grasp of disaster risk, help them to develop plans to enhance their disaster resilience and minimize the potential for losses.
APEC Bulletin: How has business continuity planning developed as an area of focus within APEC?
Dr Li: A number of large-scale emergencies in the region in 2011 put the vulnerability of SMEs and entrepreneurs into greater focus. APEC SME Ministers affirmed the need to share practices to boost natural disaster preparedness and business resumption within the sector.
Senior disaster management officials furthermore put forward a list of recommendations which included a call for greater information exchange and policy coordination—both between agencies and with the private sector.
APEC Bulletin: How is APEC seeking to take SME business continuity planning forward?
Dr Li: Our cross-cutting work gained momentum five months after the Japan earthquake and tsunami. Gathering in Sendai City - one of the areas affected by the disaster - APEC disaster management officials introduced business continuity planning methodology and examined ways to strengthen emergency preparedness through better public-private sector cooperation.
The exchange gave rise to a multi-year project that is now underway and seeks to promote business continuity planning through measures such as group training for businesses. The project involves cooperation between the APEC Emergency Preparedness Working Group and APEC Small and Medium Enterprises Working Group.
We are focused on identifying operational best practices and helping SMEs to implement them with private sector assistance, including support from chambers of commerce.
A multi-year project under the APEC Small and Medium Enterprises Working Group will benchmark business continuity plans in the information and communications technology, logistics and auto parts sectors. As the 2011 floods in Thailand showed us, these three sectors are particularly vulnerable to the effects of natural disasters.
APEC economies are meanwhile working on a project to enhance the linkage between government agencies and the private sector. The goal is to support the utilization of business continuity planning to strengthen societal disaster resilience. Transportation officials have also reached out to disaster management agencies to identify feasible solutions to natural hazards in global supply chains.
APEC Bulletin: How do you measure the progress of these initiatives and APEC’s work to advance emergency preparedness?
Dr Li: In late July and August, historic flooding struck the Russian Far East, close to the site of last year’s APEC Economic Leaders’ Meeting. Cooperation between Russian and neighboring Chinese authorities has played an important role in efforts to address the emergency.
APEC’s disaster preparedness work helps to lay a foundation for coordination like this. Building the resiliency of SMEs is a component of this process.
Our goal is to help ensure lives and livelihoods throughout the Asia-Pacific. We welcome the support of the United Nations and other regional and global disaster management bodies as we take our agenda forward.
The value of APEC’s initiatives and ways to enhance their effectiveness will be put into clearer view as the region is tested by future emergencies.