Review of Related Literature

Introduction
Many countries' economies rely heavily on small and medium-sized businesses (SMEs), which
are critical in terms of societal development.Inclusion, local employment, and innovation are all
important factors. Around 99 percent of people in the developed world, such as the European
Union,Small and medium-sized businesses (SMEs) account for over 66 percent of all private-
sector jobs. a similar situation The developing world, where SMEs account for over 90% of all
businesses, exemplifies this predicament. In both developed and developing countries, disasters
have had substantial effects on all forms of business. Natural catastrophes have both direct and
indirect effects on company operations. During the recent years, these catastrophic events have
had a considerable detrimental influence on most corporate entities, especially Micro, Small, and
Medium Enterprises (MSMEs). Though many studies have looked at the impact of natural
disasters on individual households and the larger macroeconomic climate, the impact of natural
disasters on SMEs is one of the least researched areas in the disaster risk reduction discipline
(DRR). According to the literature, MSMEs are more exposed to natural disasters than large
corporations since they tend businesses operate in less-than-ideal locations; are smaller and
financially vulnerable; have a more limited, mainly local market; use less DRR procedures and
are more likely to be excluded from recovery programs.

Micro and Small Medium Enterprises (MSMEs)

MSMEs aren't defined in any particular way. The number of employees is used by the majority
of enterprises and governments. In the process of categorizing firms, the value of fixed assets,
annual turnover, and balance sheet size are used as selection criteria. MSMEs are defined
differently by different organizations and government entities in Sri Lanka. The World Bank, on
the other hand, defines MSMEs as businesses with less than five employees. Firms with 6 to 49
people are termed micro enterprises; firms with 50 to 99 employees are considered medium
sized; and firms with more than 100 employees are considered major firms. Because capital must
be changed periodically owing to inflation, utilizing the number of employees as a selection
factor appears reasonable.
MSMEs contribute to the community's well-being through creating jobs, selling goods, and
providing services. As a result, MSMEs are a significant aspect of emerging country economies
and will become even more so in the future. MSMEs are more adaptable in their operations.
Especially casual businesses. Labor relations are often founded on trust rather than
accountability measures, resulting in a fundamentally different structure for job creation — one
that promotes community networks directly. As a result, MSMEs may interact with communities
more effectively than larger businesses, and they are important players in local development.
MSMEs play a crucial role in local communities' employment provision, not just in terms of the
amount of jobs they create, but also in terms of the types of people they hire. MSMEs are more
likely to hire people who are less 'employable,' having less education, less social protection, and
often belonging to particularly vulnerable groups. MSMEs have been highlighted as providing
employment to those who are less likely to obtain work in a larger organization, such as older
and previously unemployed workers, even in affluent countries.
The Bolton Committee of 1971 was the first organization to provide a solid definition of SME,
according to [16]. The Committee defined SME as "a firm is regarded as small if it meets the
following three criteria: it has a relatively small share of the market place, it is managed by
owners in a personalized way management structure, and it is not part of a large enterprise."
However, alternative definitions depending on the number of employees and annual turnover can
currently be found in developed, developing, and least developed countries. According to, SMEs
are defined as companies with fewer than 500 employees by the European Commission and the
Organization for Economic Cooperation and Development (whose members include European
and Asian countries such as Japan). In Malaysia, however, the definition of a small business is
divided into two categories: manufacturers and service providers. According to SME Corp
Malaysia, the maximum number of full-time employees for manufacturers is 200, while the
maximum number of full-time employees for service providers is 75.

Catastrophes' consequences on MSME’s

The first research on the impact of disasters on businesses were published in the late 1980s. After
the Loma Prieta earthquake in 1989, the first study of this kind was conducted in the United
States. After the disastrous occurrences of the Great Midwest flood in 1993, the Northridge
earthquake in 1994, and the Red River flood in 1997, similar studies were done in the United
States. The majority of studies on the effects of disasters on business and their continuance,
according to the available literature, were undertaken in the United States and other
industrialized countries. In the context of underdeveloped countries, there are very few research
in this topic.
The bulk of metropolitan settlements in Asia are located in coastal areas and deltas, which are
more vulnerable to climate change and natural disasters like floods and landslides. Because of
logistical and infrastructural support, the presence of banking and financial institutions, strategic
business circumstances, and the high growth of the urban market, many SMEs prefer to operate
in urban regions. Small businesses operating in these areas will be more vulnerable to natural
disasters.
Disasters have had significant negative effects on all types of businesses, including MSMEs.
MSMEs are particularly sensitive to natural disasters and are impacted in a variety of ways.
MSMEs are vulnerable in two ways. To begin with, smaller organizations have fewer financial
and technical resources to mitigate and manage risk, as well as fewer risk management systems.
Most MSMEs, particularly in developing countries, do not use catastrophe risk management
measures such as insurance, diversifying their supply and consumer bases, and providing social
safety for their employees. Second, due to the disaster's overall bad impact on the communities
in which MSMEs operate, disasters may have a greater influence on their performance than other
sorts of challenges. Many firms never recover from a disaster. More than 43% of businesses do
not reopen after a tragedy, and 29% close permanently within two years, according to the US
Institute for Business and Home Safety.
Flooding's effects can be classified in a variety of ways, including short-term vs. long-term;
direct vs. indirect; and so on. Damages to fixed assets and capital, damage to raw materials and
crops, injuries and deaths are all examples of direct repercussions. Indirect effects are challenges
that arise in production/services or business continuity. The majority of the effects of flooding
are observable. This category includes things like property damage, damaged goods, and
temporary business shutdown. However, some of the negative effects of flooding are not readily
apparent. For instance, floods may result in the loss of paper work or papers. These issues will
cause issues with the recovery process, order status/payments, and insurance claims. These
effects, according to Metcalf et al. (2010), can be classified into six groups [13]. Markets,
logistics, premises, people, procedures, and financing are the six categories. All of these disaster
impacts on company were re-divided into four categories by the Philippine Institute for
Development Studies in 2015, namely capital, labor, logistics, and market [14]. This study also
employed the four flood impact categories since this classification is more appropriate and has
been used successfully in the developing Asian economy.
Capital
Land, equipment, and revenue losses have all been cited as major sources of financial hardship
for firms following disasters. Due to fewer or no sales during and after the crisis, revenues are
projected to decline. Stock damage or loss might cause problems with business continuity. It can
result in a temporary shutdown of a business, while the structural repairs required to resume
operations typically take a significant amount of financial and other resources. Manufacturing
equipment and machinery might be badly damaged, causing output to be disrupted. If firms are
not insured or do not have the resources to make these repairs, their survival is in doubt.
Logistics
Disruptions in the provision of public and utility services during disasters, such as power, water
supply and sewage, fuel, transportation, and telecommunications, can cause businesses to close
and population dispersion. Disasters are predicted to disrupt facilities and public infrastructure,
forcing businesses to seek alternate or emergency logistic support to keep operations running.
Damage to public infrastructure may force businesses to close for a prolonged length of time
while repairs are made.
Labour
Human resources are the most valuable asset for any firm, especially MSMEs with a small staff.
Employees of these companies could be among the first to die or be injured in the disaster.
Furthermore, the labor force may experience physical and psychological health consequences,
such as injuries and stress. Employees may be exposed to the severe health risks that persist
weeks, if not months, after a flood. The most prevalent epidemics that might occur after a storm
are waterborne diseases like diarrhea and cholera. Those who may be seriously harmed are also
in financial difficulties. As a result, personnel availability is critical, and enterprises must
consider manpower reinforcement and support those impacted individuals in returning to work as
soon as possible, allowing firms to fulfill targets, respond to spikes in demand, and resume
operations in the shortest time possible.
Marketing
In the short term, market demand is projected to shift, with a dramatic increase in demand for
basic commodities and a reduction in demand for numerous non-essentials. In general,
challenges in product distribution, receiving, and shipping are relatively prevalent issues
following a flood. As demand for many products declines, sales turnover falls precipitously,
making it difficult for MSMEs to manage their accounts payable and, as a result, their financial
balance. MSMEs are hit harder by the reduction in demand for their products because the bulk of
them are small businesses. Totally reliant on nearby marketplaces, where the inhabitants are
direct flood victims.
In addition to the direct effects of floods listed above, there are secondary effects on the
community and local economy. Temporary and permanent business closures may result in job
losses, causing economic and social problems in the surrounding towns. These economic and
societal consequences are difficult to quantify in monetary terms.

References
Importance of SMEs. http://smeinternational.org/sme-information/developing-malaysian-smes/
(accessed 15/05/29)
Over 13,000 SMEs affected by Kelantan floods; Mustapa. http://english.astroawani.com/flood-
news/over-13-000-smes-affected-kelantan-floods-mustapa-53215 (accessed 16/02/12)
Pelling, M., Özerdem, A., & Barakat, S. The macro-economic impact of disasters. Progress in
Development Studies, 2(4), (2002) 283-305