Inert or Adaptive: How Microenterprises Navigate External Disruptions

Abstract

Microenterprises are crucial to the global economy, yet our understanding of strategic decision making in these firms remains less developed. This research takes an abductive approach to examine how microentrepreneurs respond to external disruptions, the performance implications of these strategies and factors predicting different response choices. Using multi-country data from the World Bank COV-ES surveys and two waves of proprietary field surveys with microentrepreneurs in India, we study these questions in the context of the COVID-19 pandemic. We find substantial heterogeneity in the responses of these businesses. Strategic adaptation emerges as a common and effective approach, challenging prevailing narratives that consider microenterprises homogenous and strategically inert. Machine learning analysis shows that prior entrepreneurship experience, financial resources, search breadth, and technology use predict adaptation.