Big companies fly as small ones find it hard to stay afloat

A pandemic does not distinguish between big and small enterprises. It wreaks havoc on all of them, but they are not equally equipped to absorb the financial shocks.

This feels obvious as one looks into how some companies in Bangladesh could turn around to register a growth amid the ongoing global Covid-19 contagion, whereas others – stuck in the murky present – see a bleak future.

An analysis of last year's business operations shows that top companies in big industries, including pharmaceuticals, housing, construction and plastic, have already begun making profits, overcoming the initial hiccups caused by Covid-19. A lot of them have not only gained back its pre-Covid production capacity but also have put in new investments.

But, small companies, on the other hand, are suffering from a cash crunch as well as a decline in sales. Most of them did not get funds from the government stimulus packages. Many have spent out their capital and closed down businesses altogether.

Those who rebounded to make profits got the advantages of big capital, brand recognition, a strong marketing network and government incentive packages, as opposed to small institutions slimming down further in the fight against Covid impacts.

Such a trend, according to economists, will jeopardise healthy competition in the market and cut jobs. They propose taking measures to steer the struggling companies back to business based on an assessment on the ground.

Ahsan H Mansur, executive director of the Policy Research Institute, said due to a strong supply chain system the market had been leaning towards big companies before Covid-19. The pandemic only expedited it to a culmination.

But small and medium enterprises should be given support for the sake of employment. The government, if needed, will have to formulate a separate policy for that, Mansur said.

Meanwhile, a second round of incentive programmes of Tk2,700 crore got the go-ahead yesterday, a significant part of which will go to small and medium enterprises.

The uneven recovery

Beauty Plastic Industries produced plastic items worth Tk10-12 crore every year. As the pandemic struck, it remained shut for three months like many others until the end of June.

When the two-decade-old factory at Golam Mostafa Lane in Old Dhaka resumed operation, it could use only 20-25% of its production capacity.

Its production shrank further in July when several officials, including the company's founder Asghar Ali, contracted Covid-19.

Reduced to one-eighth of its capacity, the company registered sales of less than Tk1 crore last year.

Meanwhile, Asghar Ali died. Her son Akbar Hossain has taken over the charge of the factory now.

"I paid the workers for a few months with the cash I had in hand," he said.

A decline in demand drove the production down. Complications arose in paperworks after Asghar Ali's death, and Beauty Plastic failed to get any loan from the stimulus packages.

The company is now teetering on the edge, Akbar said.

But, in some cases financial support has also failed to prove fruitful.

Olympic Accessories, a mid-range company in the plastic and accessories sector, saw its production drop to one-fourth last year even after receiving cash support from the government.

According to data from the stock exchange, the company sold products worth Tk5 crore in the last two quarters of 2020. The figure was Tk20 crore in the previous year.

Like Beauty Plastic and Olympic Accessories, some 4,000 small factories are in distress while market leaders have expanded their businesses, RFL Plastics for example.

When other factories remained shut, RFL continued its production, abiding by the health safety guidelines, and sales through its own showrooms and dealers. As a result, it could increase sales when the pandemic was raging.

RFL's Managing Director RN Paul told The Business Standard that the company's sales had gone up by 20% last year.

"This growth was possible because of product diversification and production of essential items," he said.

Like RFL, big companies such as Bengal, Taj, Sony and Medina Plastics increased sales last year while small companies lost their market.

Recovery in the housing sector has been similarly unequal.

Over the past six months, more than Tk10,000 crore has been invested in the sector and the top 30-35 real estate developers grabbed all of it. It happened when many were about to wind up their businesses.

Concord Real Estate Limited, a company of good reputation, recorded a rise in sales by more than 10% in 2020, having sold out all its ready flats.

Tareq Alam, managing director of Concord, said business had been as usual throughout last year except for three months until May.

"The last two months were better. We have several new projects coming up. Hopefully, our business will have further growth this year."

On the other side of the coin is Oishi Properties. The company is struggling with a project in Rampura launched at the beginning of 2020. Those who booked flats under the project are not paying the monthly instalments.

The rest of the flats could not be sold for a lack of publicity and because buyers are reluctant to visit the site amid the pandemic.

Md Ayub Ali, chairman of Oishi Properties, said there was hardly any progress in the Rampura project. Flats of two other projects – in Moghbazar and Mirpur – have not been sold either.

The funds have dried up bearing costs of office operations. "I do not know how to stay afloat, let alone start new projects," Ayub said.

Other sectors, including medicine, cement, steel and electronics, are reeling from similar realities.

The top cement companies, Shah Cement, Bashundhara, LafargeHolcim, Premier and Crown saw their sales ticked up in the economic meltdown induced by the global contagion. But 50 small and medium enterprises have been facing businesses to erode.

Among the brands of electronic goods, Walton is as good as it was before the pandemic while Samsung recorded a leap in sales. On the contrary, Minister and My One suffered a financial crunch.

Covid-19 pushed up the demand for medicines. In seven months after the 66-day shutdown, sales of drugs were up by more than 10%, which benefited only the top 10-15 companies.

The top 10 out of 164 companies accounted for 70% of the total drug sales in the country.

According to the IQVIA, a multinational health research institute, Beximco Pharmaceuticals led the sector with its sales jumping by 21.84%, followed by Healthcare Pharmaceuticals Ltd with a sales growth of 21.4% and Square 17%.

Smaller companies, however, have been dealing with different realities.

One such company is Hudson Pharmaceuticals Ltd. Its sales are down by at least 10% from the previous year.

Hudson's Managing Director and Secretary of the Pharmaceutical Industry Owners Association Shafiuzzaman said, "Small and new companies could not hold on to their market as doctors kept their chambers closed and sales representatives could not move about to promote products."

Over the counter, people buy medicines of well-known companies only, he said.

Big companies ahead in the line to receive incentives

To help companies ride through the Covid crisis, the government is providing incentives to various sectors so that they have enough capital to continue business.

Of the Tk100,000 crore worth of stimulus packages declared by the government, Tk33,000 crore was allocated to the big industries, 93% of which has already been disbursed until December.

The export-oriented businesses have received 100% of their allocated Tk7,000 crore.

But, Cottage, micro, small and medium enterprises (CMSME) received only 54% of the Tk20,000 crore stimulus package whereas employment in this sector is higher than others.

Many institutions of the sector had to stop operations because of inaccessibility to loans. They did not meet the conditions to get stimulus funds, neither did banks come forward to provide them with loans.

Parvez Rahman, owner of a small T-shirt factory in Gazipur, is one of them.

His money depleted as he paid rents and bore familial expenditures, having closed his factory during the countrywide shutdown. Now there is hardly any order for his products.

"With no capital, I am facing an uncertain future," Parvez said.

In extending support to businessmen or entrepreneurs like Parvez, the government can enforce making 30% of the public purchases from CMSMEs, said Khondaker Golam Moazzem, research director at the Centre for Policy Dialogue.