The impact of Covid-19 pandemic on small businesses in tourism and hospitality industry in Malaysia

1.1 Underpinning theory

The Chaos Theory is explained in the context of physical science. According to previous scholars, “chaos” is defined as a condition, while “Chaos Theory” is explained as a combination of useful methods to scrutinise unpredictable problems (Cambel, 1993). Chaos Theory guarantees effectiveness in a nonlinear dynamic system, which classifies with the emergence of a specific pattern in an indeterminate industry situation (Levy, 1994). The disastrous and unpredictable events in the tourism and hospitality industry have affected tourism mobility, which is considerably intertwined with the country’s economy.

Generally, amid chaotic crises, global and local disruptions have more effects on small businesses and can damage them totally (Boukas and Ziakas, 2014). This study investigated the sophisticated tourism industry during the unexpected COVID-19 pandemic and its impacts on economic crises based on the Chaos Theory or butterfly effect. Business operators and managers are required to propose an alternative business model through the progressive stages of a crisis: the pre-stage, the during stage, and the post-crisis stage (Mckercher, 1999). Based on the United Nations [(UN) (2004)] reports, several frameworks and independent guides have been formulated for risk reduction, sustainable development and humanitarian action. In particular, they comprise awareness, preparedness, early warning and management recovery strategies (UN, 2004). Effective recovery strategies can help minimise the potential financial crisis scenario (Ritchie and Jiang, 2019; Hao et al., 2020). However, in the context of the COVID-19 pandemic, the tourism industry and its relevant businesses must develop a fundamental framework to better understand the new business environment, apart from implementing management recovery strategies (Sharpley et al., 2021; Reddy et al., 2020; Radic et al., 2020).

The tourism crisis is a combination of economic and socio-political crises (Zenker and Kock, 2020). The Chaos Theory provides clarification regarding the unforeseen consequences for tourism and hospitality businesses by focusing on small changes and creating fundamental alternatives in their operations (Boukas and Ziakas, 2014). In this study, the Chaos Theory provides a theoretical strategy to better understand the dynamic evaluation of TSMEs and their complex interactions among unpredictable financial crises and uncertainty (Zenker and Kock, 2020). Typically, the Chaos Theory is simulated to the model to describe the interactions between all participants within the industry, including business owners, managers, suppliers and marketers (Cartwright, 1991; Levy, 1994). The Chaos Theory promises businesses to have intensive implications for what and how they plan for the difficult situation (Levy, 1994). For instance, the small business owner requires to consider various problems that could fail the business due to unlikely risks. Therefore, if something goes wrong as in the outbreak of a disease or virus, the business owner must respond actively by adapting to any changes.

For the Malaysian tourism and hospitality sectors, they have already entered the short-term recovery strategy with the conditional, progressive reopening of F&B outlets and domestic travels since June 2020. Nonetheless, to fully contain COVID-19 is still hard to predict. To step into the long-term recovery phase, many small businesses sought financial aid from the Malaysian government, applying a self-save strategy to monitor their cash flow and minimising non-essential costs. Therefore, identifying the consequences and limitations of the contemporary crisis should be considered as a different management model for the TSMEs, which are the most vulnerable group in the tourism and hospitality industry.

2.1 Impact of Covid-19 outbreak on tourism

SMEs are essential business sectors for economic development with contributions to tourism growth across nations (Jalali and Jaafar, 2019). In Malaysia, SMEs represent the backbone of the economy, especially in the tourism and hospitality sectors that are directly related to culture (Jalali et al., 2020; Jaafar et al., 2020). Based on the firm’s characteristics and its size, small businesses seem to dominate the tourism industry in Malaysia. Well-respected small businesses have a significant role and provide reliable services to attract all kinds of travellers to Malaysia. The role of small businesses in the Malaysian economy is inevitable, especially in the tourism industry, which is a key source of Malaysia’s GDP annually (Puah et al., 2018; Azam et al., 2018). The Malaysian Association of Tour and Travel Agent (MATTA) reported that the Malaysian tourism industry created 3.5 million jobs, i.e. 15.2% of Malaysia’s GDP in 2019. However, there was an unsteady decline of up to 90% in March 2020, followed by a near-total loss throughout April, May, and June 2020 (The Star, 2020). In the ASEAN region, the total contribution of tourism to the ASEAN’s GDP was reported around 12.5% in 2019. (Mastercard-Crescentrating, 2020). Besides, Malaysia, Singapore and Thailand enjoy the top three intra-ASEAN travellers with around 74% of trips. Over the past few months, however, 78% of the trips were cancelled; changes in schedules, vacations, and business travel in Malaysia have created a dramatic situation for the tourism industry in this area.

According to the previous experiences during Ebola and SARS outbreaks, a negative relationship was established between tourism activities and an epidemic (Zeng et al., 2005; Kongoley-Mih, 2015). Therefore, the tourism crisis is not a surprising phenomenon. Some well-known similar examples have negatively affected tourism flows around the world (Speakman and Sharpley, 2012). The UNWTO reported that international travel and tourist movements have severely slumped at 20–30% in 2020 when compared to 2019. The WTTC highlighted that more than one million jobs were lost worldwide within the tourism sector (Del Valle, 2020). In accordance with the latest report published by the International Labour Organisation (ILO, 2020), the COVID-19 outbreak will have short- and long-term massive impacts on society. Hotels are one of the most vulnerable sectors in the tourism industry; they were affected by unexpected catastrophes such as the COVID-19 pandemic, which required prompt action to address various challenges (Jiang and Wen, 2020).

In Malaysia, hotels are fundamentally considered as long-term-hold investment assets with a minimum of a 10-year holding period (Hoisington, 2020). Generally, financial fragility in small businesses depends on how much cash is available, as well as savings the owners can access (Bartik et al., 2020). This means that businesses with more cash are more confident about their future. The tourism industry in Malaysia has projected a specific plan for the year 2020, with the slogan “Visit Truly Asia Malaysia”, VMY2020. The program has been initially planned to celebrate year-long events to offer in terms of Malaysian culture, cuisine, natural beauty and heritage (Tourismmalaysia, 2019). According to MAH, 4880 hotels and budget hotels were registered in Malaysia (Thestraitstimes, 2020). Most hotels have hoped for lucrative business during Visit Malaysia 2020 with a large amount of investment in their operations, which has been cancelled. The COVID-19 outbreak not only affected the large franchise hotel industry or restaurants; rather most local businesses were severely hit during the MCO and CMCO period.

According to the Malaysian Association of Hotels (MAH), 15% of hotels in Malaysia will be closing for good or remain closed until the end of 2020 (Justin, 2020). For instance, Penang tourism has been suffering huge losses due to the COVID-19 outbreak. Five hotels in Penang have closed, and it is expected that more hotels in Penang will slow down operations due to the global pandemic (Basyir, 2020). Besides, the restriction of international travel, some high-risk countries, including China, Italy, Japan and Iran, have been banned from entering Malaysia, regardless of nationality (Jr, 2020). All inbound tourist activities in Malaysia were reduced significantly. The main tourist attraction is the fair travel packages, which include budget hotels, local food and transportation offered by small tourism businesses (TourismMalaysia, 2019). The pandemic has, therefore, affected the tourism supply chain harshly, especially small businesses in the tourism sector.

In battling the COVID-19 pandemic, the Malaysian government has cancelled all crowd-gathering events and social activities until the end of 2020. Since March 2020, all tourism activities in Malaysia, such as hotels, tour guides and cruise operations, have halted their services. The tourism industry and all TSMEs experienced a drastic market crash due to the declining number of tourists visiting Malaysia. Some hotel owners even sold off their properties due to the huge losses in the tourism and hospitality sectors (Augustin, 2020). Such an environment is, in fact, devastating for TSMEs as they are unable to predict when the outbreak stress and crisis will end to resume normal operation.

The economic and non-economic impacts of the COVID-19 outbreak demonstrated greater responsibility by residents and business operators, directing more attention to those who are suffering more. Due to the physical distancing policy and the lockdown rules implemented in many countries, countless hotels, restaurants, cafés and small food operators were closed to avoid the unnecessary crowd. However, the factors that may influence small F&B and tourism-related businesses in Malaysia, such as rental fees, taxes and late payment, should be identified to devise appropriate recovery strategies after this circumstance (Kathirasen, 2020).

Although the post-COVID-19 improved situation might have brought some relief to the tourism industry, the tourist crowds cannot be the same, and social distancing is bound to control the mass travel to well-known tourist destinations, such as Langkawi and Penang (Malaymail, 2020). Evidence has recently revealed that many tourism businesses have lost confidence in resuming businesses even after this current outbreak will come to an end eventually as after six consecutive weeks of MCO, the MAH predicted a total of RM6.36bn losses for the 2020 revenues in the hotel industry (Theedgemarkets, 2020). The Malaysian Government has provided economic stimulus packages for the tourism and hospitality segments to provide temporary breathing space for tourism stakeholders and related businesses, which were impacted by the current pandemic, mainly the TSMEs (Foo et al., 2020), as illustrated in Table 2.

Nevertheless, income security and flexibility should matter to employees in the tourism industry. Martins et al. (2020) asserted that the post-COVID-19 model of tourism and hospitality workforces will require training to learn sector-transferrable skills and service transmission to move between services not only in the context of the pandemic but also to address workforce resilience. Ever since the entry ban to Malaysia, all hotels and tourism-related businesses have been struggling to survive with cut wages and unpaid holidays, but often, these strategies are impractical for smaller hotels and firms (DW, 2020). The Malaysian Government has pledged to support a number of hotels by using their hotels as quarantine centres to temporarily accommodate passengers returning from abroad. However, small-budget hotels that typically accommodate foreigners and backpacker travellers have drastically suffered. Most of these small properties are long-term tenants that face an unprecedented financial crisis.

Previous studies showed the trends and impacts of the COVID-19 outbreak in search of viable scientific facts and practical precautions to contain the spread of the virus, which might help people resume normalcy (Jamal and Budke, 2020). However, small businesses in the tourism industry, such as budget hotels and homestays, are limited or have been shut down due to the MCO policies executed in Malaysia since March 2020. For rural tourism, Community-based Tourism Enterprise (CBTEs) is an important tourism project for the development of the Lenggong World Heritage site in Malaysia (Jaafar et al., 2020). After the pandemic period, CBTEs will potentially grow to support tourism development in the rural part of Malaysia. Resuming domestic and international travel can help optimise growth in different tourism sectors. Towards a new recovery phase, all small businesses and organisational functions should prioritise their spending or postpone any tasks and events that do not bring any value to the current situation because even when the challenges are successfully addressed, this will not guarantee any promising future (Gursoy and Chi, 2020). Hence, they should be alerted about the available survival strategies to sustain them throughout this unforeseen circumstance and in the future (Baker et al., 2020; Peeri et al., 2020).

2.2 The impact of Movement Control Order on F&B businesses

Based on the current epidemiological reports, Shahidi (2020) believed that there has not been any report on COVID-19 transmission through food and the virus is not a foodborne category, which has yet to be confirmed. Due to heat treatment, well-cooked food should be safe since no virus is transmitted during the packaging or delivery procedure. In light of the importance of food safety, good hygiene practices help in keeping safe the food supply and delivery.

There are strands of evidence that the psychological impacts of the COVID-19 pandemic will be felt in the long term, along with financial impacts. The feeling of anxiety may lurk amidst the public and population, including those not at high risk (Montemurro, 2020). Distress and anxiety have hindered people from performing their routine activities, such as dining out or walking in public places. Malaysians typically dine out due to the broad range of food and beverages sold at reasonable prices. Overall, the COVID-19 pandemic impacts on the Malaysian food industry are expected to be devastating and will affect small businesses. The unprecedented disruption has heavily affected the routine behaviour and activities of Malaysians. Malaysians avoided take-away meals before the pandemic. After the MCO, however, spending on restaurants and takeaway meals declined. Grocery shopping has increased approximately thrice. The local cuisine has become a trend to promote its tourism. Hence, because of COVID-19, Malaysian tourism arrivals were affected. More people preferred cooking at home while restaurants and food caterers have been advancing their services to keep their regular customers.

The only solution for food business operators is to close or dismiss staff and focus on online takeaway orders. Some food operators have changed their business model although with fewer sales and benefits for sustainability. Such emerging models, however, are ineffective for businesses that depend on crowds and a large number of turnovers. Moreover, 646 bars and clubs, which are visited by tourists and ex-pats, have been banned. Thousands of restaurants have temporarily shut down their businesses and some may even face bankruptcy (DW, 2020).

Speedy online food delivery services are necessary to ensure a successful business, along with strong communication strategies (Mohd Hanafiah and Wan, 2020). Upon merging all active food delivery businesses with franchise food brands, such as Kentucky Fried Chicken (KFC), McDonald’s and Pizza Hut; the F&B operators have offered speedy food delivery services, obeying hygiene etiquettes. Local food businesses suggested several recommendations and new menus, which are limited but convenient to order. However, food delivery has been the solution for many businesses, while it is not a sustainable answer for small restaurants or cafés that rely on consumer turnover. Thus, digital and intelligence services transformation in both supply and demand is a key necessity (Hao et al., 2020).

The Ramadan fasting month between 24th April and 24th May 2020 was one of the most important times for Muslim businesses in Malaysia, especially for small and home businesses. Ramadan Bazaar is very popular in Malaysia during the fasting month, but it was cancelled in Ramadan 2020 due to the enforced MCO to prevent crowd gathering (Thestraitstimes, 2020). Hence, some business operators sold their products online via social media promotion. For instance, the Food Panda delivery in Penang announced that its delivery service was able to collaborate with the Ramadan Bazaar businesses during the third phase of MCO as E-Bazar. The Food Panda E-Bazar service helped the local food vendors, who usually sell food and products during the fasting month of Ramadan (Law, 2020).

Moreover, according to Cao et al. (2020), the increasing anxiety disorder during the lockdown is bound to worsen due to poor interpersonal communication and mistrust. Because of fear, all local food vendors and small businesses, such as hawker food stalls, food trucks and seafood sellers have closed. A critical overview of small businesses uncovered the pathway in which the sector has been devastated financially and psychologically. The MCO has influenced the food supply chain, such as the fresh fish and shellfish market, as well as local fruit suppliers. In this crisis, Food Industry Asia (FIA) announced a stimulus package to support businesses, people’s welfare and the economy of worst-hit countries by the COVID-19 pandemic. In addressing food shortage issues, the Malaysian Government has allocated RM1bn for all food sectors and the domestic food supply chain (Fia, 2020). As many businesses are struggling to cover their expenses during this difficult period, the Malaysian government provided support through a range of financial aid packages. For instance, the government offered discounts on utility bills, extended the income tax submission deadline, withdrawal from Private Retirement Scheme (PRS) (Sidhu, 2020), and an automatic six-month loan moratorium for SMEs and TSMEs (Cimb, 2020). Therefore, innovation and skills, together with crisis management, must be considered to provide maximum benefits (Hadi and Supardi, 2020). Based on the Chaos Theory, as the F&B businesses were adjusted to the new normal, they can create a quick reactive response if any risks occur. The continuous monitoring and adjustment will help all small F&B sectors to bounce back their businesses economically. The significance of F&B entrepreneurs and TSME remains as important and challenging as ever, although the Covid-19 pandemic has dramatically changed their business status.

4.1 Theoretical implications

The obtained perspectives highlighted the significance of identifying and implementing recovery strategies, as well as coping strategies based on the Chaos Theory for the TSMEs in battling the COVID-19 pandemic that has led to economic and financial crises. More importantly, the pandemic disruption has not exerted an equal impact on all businesses (Le Nguyen and Kock, 2011). Due to the business differences in response to the crisis duration, TSMEs operators and entrepreneurs need to measure the existential threat based on the pandemic duration (Bartik et al., 2020). As such, TSMEs workers and employees are too vulnerable to this uncertain situation (Brouder et al., 2020). This study suggested that innovative recovery actions, in addition to developing alternative business models and risk reduction strategies can all minimise the current financial crisis of the chaotic situation of COVID-19 pandemic and post-pandemic (Hao et al., 2020; Ritchie and Jiang, 2019).

Therefore, small businesses must propose various strategic alternative business models even periodically. Changes in some businesses are inevitable, especially for small businesses that are more vulnerable to this situation – innovative ability plays a key role in crisis recovery (Zenker and Kock, 2020). As such, the pandemic has raised unexpected risks, which called for improving various extenuation business models with more sustainable plans. In chaotic situations such as the ongoing pandemic situation, long-term strategy and planning are very difficult, while short-term predictions are possible. Due to the tourism demand shock, the financial crisis of the Covid-19 pandemic has affected SMEs. According to the Chaos Theory, systems are dynamic, and the relationship between cause and effect does not follow constancy (Guo et al., 2009). In other words, chaotic systems are very sensitive to small changes in the industry structure, which can cause dramatic impacts on performances (Doherty and Delener, 2001). The level, which is called the edge of chaos, is typically explained, whereby innovation and creativity will happen (Le Nguyen and Kock, 2011). Therefore, small businesses in the tourism and F&B sectors need to identify the chaos level of their environment as a new business opportunity. Second, due to the unpredictable status, businesses require instant innovative moves and act quickly with flexibility. Accordingly, it might be helpful that business owners learn from their first moves and continuously update the implemented recovery strategies, as well as the renewal of their products and services based on what feedback they receive (Ghobadian et al., 2008). From another perspective, to survive in a chaotic environment in the post-crisis period, the Chaos Theory principals formulated a model to manage the survival of the TSMEs concerning transition economy (Le Nguyen and Kock, 2011).

However, the theoretical tourism crisis management model can display some weaknesses and gaps, which may limit some recovery strategies and their impacts on the future of the tourism industry. Mapping the complexities of the post-COVID-19 pandemic would enable a better understanding of the critical factors and strategies, which can respond to the crisis (Hynes et al., 2020). After all, the pandemic crisis as an external shock to all TSMEs and business shutdown could provide market entry opportunities to employ and develop new business models, which will be made by adopting Chaos Theory and the butterfly effect (Postavaru et al., 2021). Therefore, following the underlying theory, it is time to create alternative business patterns to understand and theorise future world status after the pandemic.

4.2 Practical implications

In this study, various perspectives provided some practical implications to recover TSMEs performances during and post-Covid-19 pandemic. It has been evidenced that Malaysian small businesses in the tourism industry tend to seek more efficient self-save strategies, such as reducing non-essential costs and rearranging operation hours by adhering to the recently enforced order, i.e. Standard Operation Procedures (SOPs). The Malaysian Government and policymakers should offer stimulus packages and healing frameworks for small businesses. By improving access to available resources, small businesses may effectively adopt new online and smart technologies like Grab food-delivery, Food Panda and other existing smart services in Malaysia. Budget hotels and homestays, on the other hand, are required to reshuffle their business platforms by focusing on local or medical tourism. In preparing for a better business environment and minimising the pressure of financial loss, TSMEs should manage their cash and redesign their proposed projects (Bartik et al., 2020). Therefore, the importance of a sustainable economy, in addition to a planned public health policy, represents the most significant concept in the tourism industry during the post-pandemic era (Ioannides and Gyimóthy, 2020). The COVID-19 pandemic has the potential to push the tourism industry and its operation to transform (Higgins-Desbiolles, 2020). Enabling normality has been identified as a transformational moment that opens possibilities for setting back the tourism and affiliated industries.