Abstract:
The small and medium scaled Enterprises (SME) sector in any country including Sri
Lanka is considered a vital sector for a country's economic growth. The prevailing
economic crisis in Sri Lanka fuither creates a vulnerable situation for the SMEs sector
and it affects highly the growth and performance of most of the SMEs. Therefore, it
requires identifying the impact of the prevailing economic crisis on SMEs in Sri Lanka
and ways for ensuring the SMEs' survival. Hence, this article analyses small firm
responses to a major economic downturn, based on empirical investigation in the
Batticaloa municipal council area. This study was based mainly on the positivism
paradigm followed by the quantitative approach. Th" study sample included SMEs
which were in the Batticaloa municipal council area of Sri Lanka. The variables of this
study were the Sri Lanka financial crisis, the effect of the crisis on the region, and
recession-related effects on firms and firm performance. As data analysis techniques,
levels of variables are mean and standard deviation values. The paired sample t-test was
used to analyze the before the crisis and during the crisis differences and the chi-square
analysis was used to measure the from performance. Key problems faced by the SMEs
included: the high cost of production and demand decline due to inflation, shortage of
required raw materials, continuous power cuts, working capital and liquidity problems,
and breakdown of their supply chain due to fuel issues. This research found that several
SMEs were capable to protect as survivors even during the economic crisis period due
to adaptive strategies. The researcher identified 34 strategies used by small and medium
enterprises in the crisis period. While recognizing that the study focused on surviving
businesses, in neither country did the downturn have a consistently negative impact on
small businesses, and a significant minority of firms surveyed performed well. The'
study provides much-needed evidence on small businesses' responses to major
economic crises. Conceptually it demonstrates that although many small firms are
vulnerable to changes in circumstances over which they have no control, they show
underlying resilience and a high level of adaptability and flexibility. Longitudinal
follow-up is necessary to show how the types of adaptive behavior observed impact
business performance.
