The Economist - USA (2020-07-25)

50 Business The EconomistJuly 25th 2020

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Bartleby Pandemic veterans

A

s a special-operationspilot in the

American air force, Joe Shamess was

used to handling some tricky situations.

But the sudden arrival of the coronavirus

pandemic this year meant he faced an

unexpected challenge. Together with

another pilot, Brian Steorts, Mr Shamess

had founded Flags of Valor, a company

that focused on employing veterans to

make products such as flags and gifts for

employee-recognition programmes.

When the pandemic hit, the company

quickly lost two-thirds of its revenue.

Smaller companies like Flags of Valor

have been the most vulnerable to the

pandemic and its economic turbulence.

Most have little in the way of financial

reserves and sell a limited range of pro-

ducts. Tom Sullivan, vice-president of

small-business policy at the us Chamber

of Commerce, points to data showing

that 20% of small businesses (those with

fewer than 500 employees) in America

have closed since the virus hit. Things

are worse for black-owned businesses,

which often find it more difficult to get

bank loans; 40% of such firms have shut.

Government support for American

small businesses has been in the form of

loans under the Paycheck Protection

Programme (ppp). Mr Sullivan says 72%

of small firms have received a ppploan.

But, Mr Shamess reports, “even though

we were one of the very first applicants,

we did not receive funds in the first

round.” He feels his bank failed to give

the application the attention it deserved.

With the help of a different bank, the

company managed to get funds in the

second round of ppploans. But it still

took almost a month from the initial

application to receipt of the money. Mr

Shamess says that the scale of the pro-

gramme was so great and the time need-

ed to distribute it was so short that it was

rather like trying to build a parachute

while falling to the ground.

The management therefore had to act

without waiting for the feds. The work

week went from 40 hours to 20. Some of

the firm’s 24 workers were furloughed. The

main problem was not manufacturing; the

factory was big enough to keep staff social-

ly distanced. It was distribution. Mr Sha-

mess had to close the showroom; trade

shows, which brought in a lot of business,

were cancelled.

So the firm had to innovate. The show-

room is now closed for good and most

business is online; one of the firm’s big-

gest sellers is a newly launched crafts kit

for kids, to keep little ones occupied dur-

ing the long break from school. All of the

craftsmen are now back working full time.

Still, Mr Shamess says that “we are a differ-

ent company from four months ago.”

Another firm that has had to transform

itself during the pandemic is VetCor,

which also happens to employ military

veterans but operates in the service sector.

Its main business was the restoration of

buildings damaged by floods and damp, a

common risk in Florida, where it is

based. The pandemic forced the com-

pany to close one of its offices, lay off

some of its 31 workers and apply for a ppp

loan (which it received). But Paul Huszar,

a former army lieutenant-colonel who

runs VetCor, realised the crisis created a

business opportunity.

Part of the firm’s work involved deal-

ing with the mould spores associated

with damp conditions. The same pro-

cesses could be used to disinfect build-

ings to eliminate the coronavirus; the

company already had the right chemi-

cals, air scrubbers and personal-protec-

tion equipment. This has proved a pop-

ular service with restaurants in the area.

VetCor also operates a franchising

business, but four conferences where it

was due to recruit franchisees were

cancelled. So it signed up for a virtual

career conference aimed at veterans

from Annapolis and West Point (Ameri-

ca’s naval and military academies, re-

spectively). Mr Huszar expects several

franchisees to sign up as a result.

This flexibility reflects some of the

rules Mr Huszar developed when serving

in Iraq: don’t be wedded to the plan and

recognise when conditions change. And

that is one of the advantages of running a

small company; it is easier to change

direction quickly than at a big firm.

The 20% pandemic closure rate

among small businesses in America, bad

though it is, could be read as showing

that most soldier on. A survey from the

National Federation of Independent

Business shows that optimism among

small firms rose for the second consec-

utive month in June. This month’s spike

in infections might temper it again. But

then small-business managers like

Messrs Shamess and Huszar will once

again adapt. They have the skills to do so.

How two small businesses have dealt with the crisis

put for Tata’s power companies. They won

acclaim after patching the “y2k” bug,

which threatened to crash the world’s com-

puter systems flummoxed by the zeroes in

the new century’s dates. That brought them

to the attention of big Western firms,

which realised they could hire talented In-

dian programmers at a quarter of the going

rate in their home markets. Some firms

outsourced their entireitdepartments.

The upshot has been spectacular

growth for India’s itfirms. The big five’s

combined market capitalisation surpassed

$200bn in 2019. The biggest, tcs, has 285

offices in 46 countries and as many work-

ers as Microsoft, Apple, Alphabet and Face-

book put together. The industry which has

grown up around tcs and the other it

titans comprises 16,000 companies, em-

ploying 4.4m people. The sector’s revenues

soared from $8bn in 2000 to $180bn last

year, according to nasscom, a trade body.

That is equivalent to 6% of India’s gdp. 

As in the previous downturn after the fi-

nancial crisis of 2007-09, the coronavirus-

induced recession has caused corporate

clients to tighten the purse-strings on all

manner of expenses, including it. Sales of

the big firms barely grew year on year in the

latest quarter, down from an annual

growth rate of over 20% throughout the

1990s and 2000s. Lockdowns have put their

plush campuses—the Infosys one in My-

sore has a bowling alley and a climbing

wall, as well as roaming peacocks—mostly

out of bounds. Other countries are erecting

barriers to foreign employees. America, a

crucial market, has suspended visas for

skilled temporary workers, 70% of which

typically went to Indians.

If the pandemic were their only pro-

blem, the it firms would shrug it off. Being