Turning Crisis into Advantage: An Inquiry for SMEs Responding to COVID 19 with Innovation

Abstract

Purpose To examine the factors affecting the innovative response of firms in different countries to COVID 19 during the initial stages of COVID 19. Design/methodology/approach – Enterprise survey data from the "COVID 19 follow up surveys" conducted by the World Bank during the first outbreak of COVID 19 were used. The dependent variable is a dummy variable that takes “1” if the firm has innovated in response to COVID 19, and “0” o therwise. Considering the categorical nature of the dependent variable, the Logit Regression method was used. The explanatory variables of the study consist of "use of new loans and government support, reduction of employees, ability to do business online, remote working, adaptation" at the firm level and "ease of doing business index and GDP per capita growth rate" at the country level. Findings In addition to firm level dynamics (access to new credit, ability to do business online, etc.) affecting firms' innovative response to COVID 19, the high per capita growth rate of the country was found to have a significant impact. The regression results p oint to the importance of firms' access to new credit and the adaptation of their business to the online environment. Discussion In this study, the factors at the firm and country level that affect the innovation capabilities developed by companies to survive when the COVID 19 pandemic first broke out were examined. The findings provide evidence that the ability to access new loans and online business play important role in firms innovative response to COVID 19. There is also evidence that companies in countries with large GDP per capita growth are more likely to respond to COVID 19 by innovation.