Chapter 1 3.2.2023 (2)

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CHAPTER 1 1 INTRODUCTION 1.1 Introduction to Study The new novel virus coronavirus 2 (CoV-2) arrival has caused the 2019 Coronavirus Disease Outbreak (COVID-19) pandemic. Various organizations and scholars are providing estimates of the economic impact of the COVID-19 crisis on countries. However, it is difficult to know in advance the impact of COVID-19 on the global economy. The COVID- 19 pandemic started in December 2019 from Wuhan, China. The virus has speed across the globe and has continued to spread. As of February 2021, 13–14 months after the first description of the virus. The WHO has reported approximately more than 100 million cases in 210 countries (WHO, 2021). Despite the differences in the reported data, there is no doubt that these figures show an unprecedented global health crisis in the last century. Perhaps the closest precedent is the "Spanish" influenza pandemic of 1918-1919, which was the most devastating pandemic in modern history before COVID19. It is estimated that the number of deaths from the “Spanish” flu worldwide is about 200 to 50 million (Trilla et al., 2008). Although the death toll is catastrophic, the economic consequences will be catastrophic. It is too early to assess the significant impact of the epidemic, but many authors believe that the economic downturn will exceed the 2008 global financial crisis . Due to this global pandemic, business happenings worldwide ceased operations, where the Small and medium-sized enterprises (SMEs) industry is hugely affected Impact on the World Economics In the global economy before 2020, the impact of COVID-19 will exceed mortality. Therefore, governments worldwide have completed the emergency mentioned earlier with plans and assistance to support their economies . For example, in China, we have seen severe work stoppages. This leads to lower consumption and production interruptions. Overall, the global supply chain has been disrupted. Millions of people will apply for unemployment benefits. Consumers have also changed their consumption habits, leading to shortages of many global supermarkets (Fernandes 2020). The economic impact of the ongoing pandemic is difficult to estimate. It can take months or years to assess the actual consequences accurately.

However, some publications have estimated the impact of past global influenza pandemics and recent work that attempts to predict the ultimate consequences of this crisis under different circumstances (from the most optimistic to the most negative situation). On the other hand, t he COVID-19 crisis, coupled with the oil price war between Saudi Arabia and Russia and travel bans, has pushed the stock market to its worst day since 1987 (Fernandes, 2020). GDP growth will be affected in the baseline scenario, ranging from 3% to 5%, depending on the country. In another case, GDP may fall by 10%. On average, each additional month of crisis will cost 2% to 2.5% of global GDP. The economic costs of a recession are unevenly distributed. In addition, based on past crises, it seems that younger and less-educated workers will be more likely to lose their jobs (Fernandes 2020). Foreign workers used in Saudi Arabia (mainly from India, Pakistan, and Bangladesh) account for more than half of the total labor force, and they often have no relative training. Therefore, the impact on these employees will be huge. One consequence of this unskilled labor is Saudi Arabia's poor labor productivity record (McKinsey 2015). In order to fill this gap and make the workforce better prepared for the next crisis, two sectors in Saudi Arabia are vital. On the one hand, the manufacturing industry takes advantage of the country's natural advantages and relatively large market size. In contrast, by further integrating the petroleum refining and petrochemical industries and investing in innovation to obtain higher profit products, the Kingdom of Saudi Arabia (KSA) can increase the industry's GDP by 30 billion US dollars (McKinsey 2015). These factors will attract skilled workers from abroad and pressure the Saudi education system to train young, highly skilled professionals. Although some countries are more likely to require retaliation, as mentioned above, than others, if the international community is to be safe without fear of epidemics, cooperation and cost-sharing are required. In addition, given the economic scale of the epidemic and its dependence on external trade, even if the epidemic is relatively small, wealthy countries that pose a high risk to health due to a relatively small pandemic may suffer substantial economic losses (Bloom et al. 2018). As a result, even in countries that can better control the health crisis, most countries will experience economic recession. 1.1.1 Background of study on Overview of Small and Medium-Sized (SMEs) in Saudi In today's economy, small and medium-sized businesses (SMEs) play a critical role. What factors influence SMEs' success is a hotly debated topic in academia. Scholars from

diverse fields agreed that the suc cess of SMEs in terms of employment, income, and social and economic development is critical (e.g., Autio 2005; Omri and Ayadi-Frikha 2014; Omri et al. 2015). According to Pletnevand Barkhatov (2016), SMEs account for roughly 56 percent of various European countries' gross domestic product (GDP) (Muller et al., 2017). Similarly, Abdullahi et al. (2015) listed several aspects that explain the value of SMEs, including community empowerment, poverty reduction, and the creation of employment opportunities. Indeed, the characteristics that influence their performance have piqued the interest of academics, practitioners, and policymakers alike. Critical Success Factors (CSFs) have been and continue to be the attention of numerous studies in several fields, such as CSFs for business start-ups in several nations. According to a survey of peer-reviewed literature such as China and Malaysia (Watson et al. 1998; Huang et al. 2011; Chong 2012; Chawla et al. 2010; Omri et al. 2015; Pletnev and Barkhatov 2016; Lampadarios et al. 2017), total quality management (Yusof and Aspinwall 1999, 2000); business intelligence implementation (Olszak and Ziemba 2012); business models for sustainability of food and beverage companies in the Netherlands (Watson et al. (Long et al. 2018), women-owned small and medium-sized enterprises in UAE (Gupta and Mirchandani 2018), environmental manufacturing (Jabbour et al. 2018), adoption of e-commerce by SMEs in Nigeria (Agwu and Murray 2015), implementation of lean six sigma (Laureani and Antony 2018), implementation of business intelligence in SMEs in Poland (Olszak and Ziemba 2012). Scholars studied CSFs for micro, small, and medium-sized enterprises in the Kingdom of Saudi Arabia (KSA) in general (Zamberi 2012) or in specific areas such as knowledge management (Migdadi 2009), e-commerce (Al-Ghamdi et al. 2011; Sin et al. 2016), and technology transfer (Al-Ghamdi et al. 2011; Sin et al. 2016). (Merdah and Sadi 2011), enterprise resource planning (Aldayel et al., 2011), company marketing (Sadi and Iftikhar, 2011), and computer technology acceptability (Aldayel and al., 2011) CSFs (Al-Gahtani 2004). 1.1.1 Impact on Saudi Economic and SMEs The Kingdom of Saudi Arabia (KSA) has suffered two shocks, namely the spread of COVID-19 and the sharp drop in oil prices . Government policy has responded to these two developments. The main measures taken by the Saudi Arabian government are as follows:

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i. On March 20, 2020, it announced a private sector support plan of 70 billion riyals (18.7 billion U.S. dollars, or 2.7% of GDP): postponing the payment of government taxes, fees, and other fees provide liquidity to the private sector and increase available funds through the National Development Fund. ii. The Saudi Arabian Monetary Authority (SAMA) lowered its policy interest rate twice in March 2020, reducing repo interest rates by 1.25 points and 0.5% to 1%, respectively. Aside from the other significant sector's impact, the small, medium, and enterprises (SMEs) sector of the kingdom has been impacted by the pandemic. Therefore, a clear understanding of the impact and approach to sustain the impact is needed. Figure 1.1: SMEs Stats in Saudi Arabia In reference to (Alhawel, Nurunnabi, and Alyousef 2020), SMEs help promotes growth, create jobs, and promote innovation, accounting for 99.41% of the private sector in Saudi Arabia. Their contribution to GDP in 2018 was 28.7%, and they are one of the main engines of economic growth. The government seeks to support SMEs by improving the economic environment and seeking ways to increase its contribution to GDP, diversify sources of income, and expand the production base to meet government goals and functions. The government strives to increase the contribution of SMEs to GDP from 20% to 35% by the development of SMEs in the economic transformation and 2030 vision. According to a recent report by the General Administration of Small and Medium Enterprises (Monshaat, 2020), it is speculated that operations, management, and financial markets are affected very strongly

negatively by the COVID-19. Firstly, 99.5% of the micro-small and medium-sized enterprises (MSME) samples studied were negatively affected by the COVID-19. 1.2 Problem Statement The COVID-19 pandemic has caused a significant impact on social activities and political and economic consequences worldwide. This is a global crisis, with a strong challenge and several health crises. However, T he effects of the COVID-19 pandemic are felt in almost all sectors of businesses and services. During this global pandemic, companies have faced various challenges. In Saudi Arabia, the operations, management, and financial markets are affected very strongly negatively by the COVID-19 (Monshaat, 2020). For example, The COVID-19 pandemic has affected the business sectors with a negative impact of a -5.2% GDP deviation -5.2% from the Saudi’s GDP baseline in 2020 (Abeer, 2021). However, their response to these disruptions affects their resilience and ability to respond to crises. The businesses affected more by the COVID-19 pandemic are explicitly small and medium enterprises (SMEs). This effect forces SMEs to change their business models and adapt to this changing environment, where the service industry of the SMEs has taken the most hit. Some of the challenges SMEs face include the forced shutdown of businesses, movement restrictions by the government, uncertainty, people's health and wellbeing, insufficient working capital and lack of sales. or low sales, etc. “ These challenges are consequently of the 24-hour curfew that affected businesses. People are asked to stay home, shops and businesses are requested to remain temporarily close the operation, construction projects are paused, and difficult transitioning to online sales as limited support is available from online vendors (Mohammad, 2020). Hence, Due to the various challenges , it that has negatively affect 99.5% SMEs' performance. , 99.5% of the micro-small and medium-sized enterprises (MSME) is negatively impacted. If the corona crisis continues until the next several months, a continuous "negative view" may be a situation as projected by more than 66% of business leaders. It is important to note that 65.2% of M SMEs are affected in a "very high" manner, while approximately 14.7% of SMEs temporarily laid off more than 10 of their employees. In addition, 46% of companies reported that their average sales/revenue was 100% affected in the global market. Meanwhile 17% of companies reported that their average sales/revenue was 90% affected. In the current situation, 73% of MSMEs have an extended period of 3 to 6

months. 52% of companies will not be able to fulfill companies’ obligations to employees. (XXXXX, 2021???) Due to the current pandemic, 49.1% of medium-sized companies, 27.6% of small companies, and 10.6% of micro-enterprises have stopped working for all employees. Similarly, since the beginning of the crisis, 36.4% of medium-sized companies, 23% of small companies, and 3.5% of micro-enterprises have temporarily laid off more than ten (10) employees' personnel. Order for stop work is more concentrated in micro-enterprises. The proportion of 1 to 3 employees is 44%, the proportion of 4 to 6 employees is 22.2%, and the proportion of 1 to 6 employees suspended by small businesses is 22%. Suppose the COVID- 19 continues until next the several months. In that case, most companies and SMEs are likely to lose sales, which will impact business owner’s capability to payments, leading to termination and, in some cases, business closure. 50% of medium-sized companies, 67% of small businesses, and 67% of micro-enterprises believe that a pessimistic view is possible in the long run of close doors for business due to the pandemic. To reduce the difficulty of SMEs impacted by COVID-19, several actions were taken by the government of Saudi Arabia's. The loan guarantee program pointed out measures to provide low-interest loans to fund development projects in the health, tourism, real estate, and education sectors with a more significant economic impact to ensure their sustainability (Project Support Fund, 2020). Also Furthermore , the Saudi Arabia government announced a private sector financing support program worth approximately 50 billion riyals (13.3 million U.S. dollars). This is a private sector stimulus plan for SMEs to provide funds for financing and strengthen business operations. The purpose is to ensure SMEs can sustain and continuously contribute to Saudi’s economy. Hence, it is crucial to know the impact of covid 19 on SMEs’ performance in considering the business assistant from the government of Saudi Arabia. The private sector stimulus plan for SMEs to ensure the implementation of four measures: The indirect credit plan, which will open up new horizons and channels for commercial credit, and provide entrepreneurs with competitive financial solutions and tools via a certified financing company in Saudi Arabia. Second, the following measure is to actively return the number of fees paid by small and medium-sized enterprises to compensate for the value of their chosen expenses, thereby helping to induce them to enter the market and achieve growth in the first few years after COVID-19. The third measure is to invest in SMEs in the early stages of reopening through investment funds. This measure will help fill the

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current financing gap for SMEs that are not covered by funds owned or invested by financial institutions. Finally, the fourth measure aims to help SMEs obtain the necessary Islamic financing to develop and expand their activities by raising funds from the SME Financing Guarantee Program (Ministry of Investment, 2020). 1.3 Research Objective This research aims to understand the impact of COVID-19 among SMEs in Saudi Arabia. Hence, the specific objective as below: i. To examine the relationship between SME’s internal challenges and financial performance. ii. To examine the relationship between SME’s external challenges and financial performance. iii. To examine the moderating effect of business assistance on the relationship of SME’s challenges (internal and external) and financial performance. 1.4 Research Question The research questions are developed from research objectives to examine their interrelation among the variables of the research study as follows 1) What are the impacts of the internal challenges to SME’s financial performance? 2) What are the impacts of the external challenges to SME’s financial performance? 3) Does business assistance play a role in affecting challenges and financial performance? 1.5 Research Hypothesis 1) There is a positive relationship between internal challenges and financial performance 2) There is a positive relationship between external challenges and financial performance 3) Business assistance moderates the relationship between SME’s challenges and financial performance. 1.6 Significance of Study Small and medium-sized businesses (SMEs) are a crucial source of employment and economic opportunity in communities around the kingdom. SMEs in Saudi Arabia creates considerable job opportunities at a cheaper cost of capital while also creating national wealth

and allowing for an equal distribution of income – thereby contributing to a sustainable economy. The SME sector plays a critical role in propelling the kingdom's economy ahead; it creates jobs, strengthens local capabilities, improves the business environment's competitiveness, and helps to diversify the economy, resulting in more non-oil exports. However, the covid-19 pandemic has happened, halting the growth and financial performance of the SMEs in the kingdom. This research focuses on examining the internal and external challenges of SMEs towards financial performance. The studies done will contribute to Saudi Arabia's theoretical research on SMEs' internal and external difficulties. It will also demonstrate how SME financial performance is affected by business help. The Saudi government can learn innovative approaches to resolving the internal and external issues that SMEs face in financial performance and contribute to the government's objective of SMEs contributing 20% to 30% of GDP. This research study will benefit the Saudi Arabian government's Vision 2030 objectives for SMEs and SMEs management in addressing issues coming from internal or external obstacles. 1.7 Definitions SMEs Small and medium-sized businesses are characterized by the number of employees and the annual income they generate. Businesses with 1-5 employees and 0-3 million SR annual revenues are classified as microbusinesses ; small businesses with 6-49 employees and 3-40 million SR annual revenues are classified as small enterprises, and medium businesses with 50-249 employees and 40-200 million SR annual revenues are classified as medium enterprises. SMEs Ecosystem This is a set of variable elements that influence SME growth in different ways, including internal and external challenges, institutions, cultural, economic, political, legal, and technological factors.

Institutional Support This refers to the business assistance given to SMEs by either the government, public or commercial sectors in terms of facilitating resource access. SME Growth This refers to the shift in employment, annual revenue, and financial performance of each business. Entrepreneurship & Characteristics Entrepreneurs go through this process of spotting an opportunity, taking it, and then reacting to it, which they can accomplish by inventing new goods, techniques, or markets. The trait encompasses the will to succeed and self-assurance, risk-taking, experience, inventiveness, and a sense of control. Business characteristics This includes the business’s age, location, marketing, training, competitiveness, R&D, and technology adoption initiatives. In addition, political, economic, legal, cultural, and technological issues all play a role in the environment. 1.8 Research Methodology Overview This study is explanatory to present an explanation for a pattern in a specific phenomenon (De Vaus, 2014). As a result, it adheres to the positivist approach's core premise, which blends deductive logic (building and testing hypotheses) with accurate empirical observations (inductive reasoning leads to tentative generalization). (Hallebone & Priest, 2009) to identify and validate a set of assumptions that can be used to explain individual patterns in connection to specific phenomena (Neuman, 2000). Reality exists independently of persons and may be objectively described in terms of ontology (Hallebone & Priest, 2009); consequently, the reality is empirically evident (Neuman, 2000). A hypothesis derived from a theoretical viewpoint can be validated or refuted using a linear procedure in epistemology (Hallebone & Priest, 2009). As a result, the methodology is nomothetic, in the sense that any explanation relies primarily on causal laws and interrelations to develop and validate general conclusions by employing actual data and testing hypotheses derived from theory, with the researcher acting as a detached observer (Hallebone & Priest, 2009; Neuman, 2000). As a result, the most common method for gathering and analyzing data is quantitative (Creswell, 2014; Bryman, 2012; Tuli, 2010; Black, 1999).

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For two reasons, this study conducts a survey. The first step is to generate statistics, which are quantitative or numerical descriptions of SMEs' internal and external challenges towards financial performance, as well as the moderating effect of business assistance on SME challenges and financial performance. Second, this is the only way to meet both research and analytical demands for data that is not readily available elsewhere. In this study, a special-purpose survey is the only way to ensure that all of the data needed for the desired analysis is collected. In addition, this research uses primary data to be collected using an online questionnaire, targeting the SMEs players in the kingdom. 1.9 Thesis Organization The thesis is divided into five main chapters as follows;  Chapter One: This section focuses on the study's overview, the problem statement as the rationale for the study, research objectives, questions, and hypothesis. The study's significance, definitions of terms, research methodology overview, and chapter summary. This chapter expands on the study's principles, implying that the researcher is focused on developing this research study.  Chapter Two: This chapter focuses on the independent variables on how it is related to the dependent variable as the primary purpose of this study. In order to successfully analyses the research study, this chapter will also identify the research theories, models, research gaps, and research hypotheses.  Chapter Three: This chapter begins with a thorough research methodology, including research methods, strategy, research technique, method of data collection, research design, questionnaire design, analysis type, statistical tools for analysis, pilot study, and procedure to collect data from respondents. For this study's analysis, IBM-SPSS will be used  Chapter Four: This section reports on the findings from the field data, as well as a discussion of data entry once missing data, has been examined, field research data analysis, respondent demographic profiles, and a description of the study construct. It also includes a complete discussion of the procedures for validating the measurement model using multi regression analysis to evaluate hypotheses. All of this is done to establish the desired result effectively and whether or not this study is significant concerning its dependent variable. This chapter is given special attention since it aids

the researcher in reaching a practical conclusion and making recommendations for future research.  Chapter Five: This chapter serves as a summary of the findings, as well as analysis, interpretation, and recommendation for further research. It is necessary because it adequately emphasized the whole research study. This section describes the hypothesis, offers suggestions for improvement, discusses the study's theoretical and managerial contributions, and makes recommendations for future research. It provides the researcher with a thorough analysis in order to properly end the research project. This chapter is considered a summary of the findings, analysis, interpretation, and recommendation for further studies. It is essential as it emphasized the comprehensive research study adequately.

Chapter 1 3.2.2023 (2)

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