Navigating the storm: resilience of mexican SMEs during COVID-19

Abstract

This thesis investigates the resilience and adaptation of Mexican Small and Medium-sized Enterprises (SMEs) and the unprecedented challenges of the COVID-19 pandemic. Focusing on data collected from 1,217 SMEs in Mexico City, Guadalajara, and Monterrey, the study analyzes how financial bootstrapping, financial inclusion, and digitalization, as key mechanisms, contributed to business survival and the development of a more robust SME sector. The research reveals that the pandemic severely impacted Mexican SMEs, leading to significant revenue declines, cash flow disruptions, and supply chain bottlenecks. Smaller and informal companies faced greater challenges. However, the thesis highlights the importance of financial bootstrapping (creative, unconventional financing methods) as a vital short-term survival strategy. While bootstrapping was essential, its effectiveness was significantly enhanced by access to formal financial services. A key finding emphasizes the critical role of financial inclusion in enabling SMEs to confront the crisis. Access to credit, digital payment platforms, and insurance facilitated operational continuity, adaptation to changing market conditions, and management of unexpected losses. Econometric analysis identified owner education, business digitalization, formality, and geographic location as significant determinants of financial inclusion. However, the study also uncovers persistent barriers to financial inclusion, particularly for smaller, informal, and rural SMEs, including stringent collateral requirements and a lack of credit history. The research explores the transformative potential of digitalization and higher education, particularly for women entrepreneurs. Digitalization, combined with higher educational attainment, significantly increased women's access to formal financial services and enhanced their overall business resilience. Younger women business owners especially benefited from digitalization, underscoring the need for targeted digital literacy initiatives. The thesis concludes that building a more resilient SME sector in Mexico requires a multi-pronged approach focused on promoting financial inclusion, digitalization, and formalization, all working together. Targeted policy interventions, tailored support programs, and collaborative efforts among policymakers, financial institutions, and SME support organizations are crucial to empower Mexican SMEs.