Strategic Choice and Firm Performance during COVID-19
Keywords:
crisis, crisis management, strategic choice, innovationAbstract
This paper aims to identify successful strategies for private companies to increase liquidity during times of crisis. We define four strategic choices based on an introduction and/or discontinuation of new products or services: cannibalization, retrenchment, expansion, or entrenchment. We use a micro data set from a worldwide survey of 10,349 companies conducted between April and September 2020 by the World Bank. Our results show that for most companies liquidity during COVID-19 decreased or at best stayed the same. Due to the pandemic, firms applied one of the four strategies, with the majority of the firms applying an intrench strategy. The Chi-square test was used to assess which strategy is associated with increased liquidity during the COVID-19 pandemic. Results indicate that liquidity increased or stayed the same for the companies using the expansion strategy, followed by cannibalization, intrench, and retrench strategies. Expansion and cannibalization strategies are both associated with the introduction of new products and/or services, suggesting that innovation is the key to surviving a pandemic crisis.
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