Tourism & Hospitality SMEs Owners: Keeping Their Shirt On

Business news in Bangkok

Tourism & Hospitality SMEs Owners: Keeping Their Shirt On

Tourism & Hospitality SMEs Owners: Keeping Their Shirt On

By : Patra Manas. 01-1--2020

Saving our tourism, hospitality and entertainment SMEs is vital for the health of our overall economy.

It is of top priority to help micro, small and medium-sized enterprises in tourism, hospitality and entertainment weather the COVID-19 crises, as it calls for quicker economic recovery and employment re-generation post-crisis.

Although this is a global problem, Thailand is one of the  most affected countries as  the tourism and hospitality sector is one of the country’s fastest growing economic factors and is an important driver of economic growth and development, contributing  to almost 20% of GDP.

Businesses will bear the brunt of a reduction in demand for their services and this impact is particularly felt in specific sectors such as tourism, but also amongst those  SMEs catering to the local market due to social distancing.

With travel restrictions, social distancing and the absence of a cure and a vaccine, economists and experts are predicting many more SMEs operating in these sectors will wind up.

The collective loss of business owner’s personal wealth and entrepreneurial spirit can be a devastating loss to the economy as a whole.  As business owners lose the shirts off their backs, they may find themselves descend rapidly down the economic status rung and face unemployment, leading to an acute social and economic problem that will exacerbate the  economic crisis that is facing Thailand and the world, post pandemic.

Countries globally are putting out measurements varying from cash injections, tax reductions, utility concessions, subsidising wage bills, deferring social security funds, implementing safety and health programmes to try to save these SMEs.

Unfortunately, most governments will find it hard to finance these programs and that may still not stop the closures of businesses.

The main problem SMEs face in these sectors is that the nature of the businesses are such that there is no room to pivot. At most, restaurants can resort to online delivery which is not sustainable for most businesses financially. Whether it is a hotel, restaurant, bar, club or entertainment venue, it requires customers to visit the business’s physical space to avail of it’s services.

Most businesses will not have the staying power and may choose to close anyway as once the economy reboots again, new entrants into the market who would be cash flushed will decimate the older businesses who at that time will be cash strapped.

Selling your business in this environment is also difficult as potential buyers can wait out the crisis before opening their own. Besides, even if they are buyers now, they would bargain most desperate owners down to the minimal selling price.

One way the government can help boost the value of these businesses is by raising the entry barrier for potential new investors and temporarily halting the issue of  new licenses for hotels, bars, restaurants, restaurant with bars and entertainment venues.

Even after the ban is lifted, new licenses will only be issued at premium fees, for example, one million baht for an alcohol license and is to be renewed yearly at a much lower fee. All licenses are transferable (in terms of a sale) but must be executed at the appropriate government agency for a fee.

This immediately increases the wealth of existing SMEs owners in these sectors, whereby for now, new entrants can only enter the market by buying out an existing operating  business.

This ensures that incumbent owners exit with a decent amount of capital to sustain their livelihood or to restart in the future. 

Furthermore, if owners of existing operations are reassured that barriers have been raised for new entrants, they may very well choose to keep their businesses alive and wait out the crises until demand returns.

Desperate times call for desperate measures but if policymakers are willing to think out of the box in the “new normal” way and find ways to make sure owners don’t ‘lose the shirts off their backs’or ‘keeping their shirt on’, we may very well come out on the other side battered but better.