Determinants of business recovery: The role of government support as moderator (a study on tourism SMEs affected by Lombok earthquake, Indonesia)

Abstract

BACKGROUND: Natural disasters such as earthquakes have imposed particular problems on small and medium-sized enterprises (SMEs), including on their journey to recovery. Business recovery is a term that has numerous theoretical and practical applications and is frequently regarded as the most elusive stage of a disaster cycle. Hence, it necessitates an exploration. OBJECTIVE: This study examines the determinants of business recovery in the aftermath of a disaster. A framework synthesized from the literature review and hypotheses developed demonstrate factors that drive business recovery. METHODS: This study used an explanatory approach that laid quantitative foundations. The study also tested relevant hypotheses with a statistical approach using the PLS-SEM technique. An off-line survey was conducted using data collected from 272 SMEs in tourism affected by the 2018 Lombok earthquake in Indonesia. The data were analyzed with SmartPLS to test the effects of knowledge management, mitigation strategy, business adaptability, business recovery, and government support. RESULTS: The results indicate that knowledge management, mitigation strategy and business adaptability are determinants of business recovery. However, government support has no influence in leveraging those three determinants of business recovery. This finding may indicate that SMEs that possess a strong level of knowledge management with the ability to formulate a mitigating strategy as well as adapt to certain changes are more likely to succeed in recovering their businesses. In addition, whether or not government support is viable, independently managed SMEs are more likely to progressively perform and be less dependent on aid from other entities on their road to recovery. CONCLUSIONS: KM and mitigation strategy function as determinants of business adaptability subsequent to SMEs’ recovery. On the basis of the resource-based view (RBV), mitigation strategy and business adaptability are influential resources that can leverage firms’ potential for in the quest of competitive advantage and facing environmental turbulence. Nonetheless, government support remains a challenge in the survival of SMEs to cope with the negative impact caused by disaster. Thus, government should strengthen the awareness towards such issue as well as providing much more holistic support in the future particularly to educate SMEs on the importance of mitigation strategy in prior to a disaster.