Last year, we looked at how rising inflation and supply chain delays caused by the pandemic were taking a big toll on small businesses, a situation that has not improved in 2022. In fact, small-scale entrepreneurs have struggled for years at this point while their corporate counterparts have thrived thanks to the advantages brought on by huge reserves of capital. “Larger firms have been able to weather rising costs and labor shortages better than smaller firms, which is likely a function of larger workforces, greater pricing power and stronger margins that have allowed them to absorb economic pressures more easily,” said Oxford economist Mahir Rasheed. 

For example, a small activewear company called Superfit Hero has been sold out of its signature black leggings since November because it has been unable to source the fabric it needs. Larger companies with lucrative supplier contracts snatched up most of the available fabric in 2020, leading to reduced supplies that were made even smaller due to supply chain snags. Superfit’s manufacturing expenses have doubled as a result, giving it a lot less room to negotiate on other rising costs. Big corporations, meanwhile, are often able to avoid such price jumps by signing fixed-price contracts that keep costs consistent, an advantage that smaller firms lack since they can’t afford to hire and maintain large purchasing teams. 

“Today, [small] businesses have fewer reserves, and therefore less resilience to face new waves of the pandemic and other headwinds,” said economist Luke Pardue. A recent survey found that 27 percent of small businesses had less than a month of payroll expenses on hand, with the majority of these companies concentrated in service industries. Another 12 percent of small firms said they would never return to their pre-pandemic levels of output. “I don’t see any quick resolution,” said the founder of a wholesale bakery in Detroit. “This is not a temporary situation. We are in it for the long haul.”

Questions:

1. What advantages do large companies have over small businesses during disruptive events like the pandemic or the supply chain crisis?
2. Do you think the federal government should provide another round of relief for struggling small businesses, similar to 2020’s Paycheck Protection Program? Why or why not?

Source: Ruth Simon, “Worried About Inflation and Supply Constraints? Try Being a Small Business,” The Wall Street Journal, February 21, 2022.