Impact of Covid-19 on Digital Transformation and Resilience of Small

and Medium Enterprises: The Case of Azerbaijan

ARZU ABILOVA

Azerbaijan State University of Economics (UNEC),

Faculty Digital Technologies and Applied Informatics,

Departament of Digital Economy,

Istiqlaliyyat str.6, AZ1001, Baku,

AZERBAIJAN

BASTI ALIYEVA

Azerbaijan State University of Economics (UNEC),

Faculty of Economics of Turkish World,

Department of Economics and Business Administration,

Istiqlaliyyat str.6, AZ1001, Baku,

AZERBAIJAN

Abstract:- Currently, the digital economy has a huge impact on the development of the economy and the

financial system in various countries of the world. Covid-19 has affected lives, businesses, economies, and the

world at large. The virus has had a profound impact on business operations in many areas around the globe and

more so if we look closely into what is happening now in Baku, Azerbaijan. This essay focuses on how

Covid-19 may affect Baku’s digital transformation and resilience of small and medium enterprises. The first

section deals with the introduction of technology in Azerbaijan and its current status, while the second part

provides an analysis of how Covid-19 is affecting them. Lastly, the third section deals with future implications

of these developments. The relevance of the chosen topic is expressed in the fact that the modernization of the

domestic economy of states today is impossible without effective management of the development of the digital

economy, which has a significant impact on the development of the financial system and business structures.

The experience of foreign countries shows that the digitalization process , understood as the introduction of

information and telecommunication technologies into economic processes, is objectively necessary and is

accompanied by progressive changes in various areas of economic and social life. Due to the increase in the

level of digitalization , the efficiency of the functioning of the business sector and individual sectors of the

economy, as well as the financial system as a whole, increases. Among the tasks that modern commercial

organizations face is to increase the efficiency of work and the level of competitiveness in a constantly

changing market environment.

It is possible to increase the efficiency of commercial activities by optimizing business processes, introducing

modern equipment, using automation tools, and training personnel in new techniques and technologies for

performing work.

The article examined the impact of the pandemic on the digital transformation of small and medium-sized

enterprises in Azerbaijan, as well as assessed the use of digital technologies in small and medium-sized

businesses and their effectiveness during the pandemic. As a result of the study, it was revealed that the

pandemic had a significant impact on the acceleration of digital transformation in most countries of the world,

including the economy of Azerbaijan.

The aim of the research work is to study the impact of the pandemic on the digital transformation and

sustainability of small and medium-sized enterprises using the example of Azerbaijan.

Key-words: Pandemic, Digital transformation, Medium and small enterprises, Business environment.

Received: July 21, 2021. Revised: May 15, 2022. Accepted: June 6, 2022. Published: June 23, 2022.

1 Introduction

Currently, for the majority of both domestic and

foreign companies, technological progress is a

strong competitive advantage, especially with the

accelerated development of digital transformation.

On a global scale, digital transformation

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accelerated precisely during the spread of the

coronavirus infection, which ensured the

acceleration of the development of technological

processes.

Covid-19 has completely changed the familiar

world and everyday life of not only the population,

but also the business environment. Currently, many

companies are increasing interaction with regular

customers through online communication and the

use of social networks. Thanks to a new way and

the development of the digital economy, small and

medium-sized companies stay afloat during the

financial crisis. In addition, due to digital

transformation, the unemployment rate is reduced

due to the transfer of employees to remote work.

Globalization in the face of uncertainty leads to

various market changes that can make it difficult

for medium and small enterprises, especially in

times of financial crisis.

The rapid transformations in technology in

Azerbaijan have brought with it a range of

opportunities for both local and international

players to create value and make profits out of this

opportunity [1). However, for some of the most

significant change in technology in Azerbaijan’s

history, Covid-19 has been the greatest challenge to

the society [2]. A number of individuals who were

close to their customers and involved in various

aspects of business lost their jobs. For example, as

a result of the pandemic, many individuals had to

shift from places such as Yerevan and Kyiv to

places like Dubai and Berlin or even London to

accommodate their work-related problems.

Therefore Covid-19 has significantly impacted all

forms of social interaction by creating significant

changes among individuals in the society. As a

result, those people affected may be forced to make

choices that will require adequate planning. They

may have to decide which mode of communication

must they rely upon and how to handle certain

types of clients and colleagues. It is important to

understand the circumstances under which each

individual was exposed and the effects that these

decisions have had on their daily life. In such

situations, individuals are faced with numerous

critical decisions that must be made in order to

meet their needs [1].

These kinds of decisions can prove to be

complex and take time in nature. Individuals may

be faced with a lot of uncertainty and fear of

getting infected, so some of them may choose to

face off against other people rather than face up to

the risks that come with Covid-19. Others might

seek refuge in virtual spaces where they interact

and interact with others. When people are

confronted with a choice between several

alternatives, it is vital to consider all the outcomes

in detail before making the decision.

With the development of an unstable

environment, on the one hand, the financial

development strategies of business entities should

be aimed at developing new technologies, due to

which small companies remain on the market. On

the other hand, SMEs must have the necessary

financial capabilities to introduce modern

technologies into business processes [3].

Today, during a pandemic that has swept the

whole world, almost 92% of companies are

updating their business in accordance with market

changes dictated by digital transformation.

According to research in the United States, about

30% of the population today use video chat , and

54% of consumers use online broadcasting

services. Thus, the transition to a new level of

economic development, through the use of digital

communications and information technology,

allows you to get additional benefits necessary to

maintain competitiveness and survive in the

market.

Research objectives: Consider the benefits

of digital transformation for small and

medium-sized businesses;

Explore the impact of the pandemic on the

development of digitalization in the Azerbaijan

economy.

Analyze trends in the effectiveness of

digital transformation for the sustainability of small

and medium-sized businesses in Azerbaijan.

The object of the study was digital

transformation.

The subject of the study is the features of

digitalization for the development and

sustainability of SMEs.

2 Research Methods

The methodological basis of the study is made up

of general scientific methods, which include system

analysis, general legal synthesis, system modeling

and forecasting, and the dialectical method. In

addition, special scientific methods were used in

the work - the theoretical and legal method, the

method of generalizing indicators, as well as the

graphical method, the method of comparison,

induction and deduction.

Presented Methods research helps not only to

collect facts, but to check them, systematize them,

identify non-random dependencies and determine

causes and effects. Thanks to these research

methods, the goals and objectives of the research

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work are achieved, conclusions and results are

summarized. The reliability and validity of the

research results were ensured by general theoretical

principles and their correlation with practical

results, representativeness of the sample, the use of

valid tools and statistical data processing with

subsequent interpretation.

3 Literature Review

The information base will be textbooks, expert

articles in journals and opinions of experts in the

field of financial system research.

A number of authors paid attention to the

study of the digital economy and its integration into

the world space. Garnov and Bykova [4,5],

Trofimova and Lomovtseva [6], in one of their

papers, they considered the problems and prospects

of the digitalization of the economy and in another

- how the digital economy is integrated into the

modern world. Also, this issue was investigated by

Zavyalov and Zavyalova [7], Buro., Kapitonova

and Kaibalina [8].considering the digital economy

in terms of commodity circulation and prospects,

problems of its development. Akbulaev, Aliyev and

Ahmadov have researched ways to finance social

enterprises to ensure competitiveness in providing

the highest quality services and improving the

living standards of the population [9].

Aliyeva in her study of emphasized that

people and organizations who know that they exist

in the modern world need to understand the ways of

coping with the competitive environment of

information and communication technologies and

electronic digitalization by using the information

society [10].

Akbulaev’s [11] study identified some

problems that arise in the activities of taxi

companies: a constant price reduction that forces

competitors out of the market, a decrease in the

quality of service for companies providing services

through mobile taxi ordering applications, and a

decrease in companies’ income. using traditional

taxi services. To do this, it is necessary to integrate

modern ways of doing business into the daily

activities of enterprises engaged in taxi

transportation.

At present, when competition around the

world has increased as a result of globalization,

countries are doing everything possible to increase

their competitiveness in order to gain more space in

the world market. Today, the growing importance

of domestic business and its formation as an

integral part of society in Azerbaijan imposes

certain obligations. [12].

4 The Importance and Significance of

Digital Transformation for Small and

Medium-sized Businesses

Currently, digital technologies are developing at a

fairly rapid pace. Due to the high level of

development of digital transformation, the

development of business structures in various areas

of economic activity is ensured. Digital

transformation is gaining immense popularity in the

business environment as a result of the large-scale

changes caused by the coronavirus infection.

Thanks to digital technologies, which are being

massively introduced into various companies,

doing business is facilitated, since most business

processes are simplified and carried out

automatically.

The success of any business lies in the ability to

adapt to the changing demands and trends in the

market. To succeed, a company must keep abreast

with technological developments in order to remain

relevant. Furthermore, competition has become

stiffer as companies try to outdo each other.

Consequently, companies are increasingly adopting

innovative technologies that make them more

competitive. In spite of these changes, there is

always room for improvement. When a company

fails to incorporate technology, it eventually loses

its competitiveness.

In fact, small and medium-sized enterprises (SMEs)

have undergone several transformations over the

years. This paper will focus on how SMEs can use

information and communication technology (ICT)

to improve their operations. These firms can

embrace ICT to streamline internal processes and

provide them with efficiency such as increased

productivity and accountability. Indeed, by using

this approach, they can achieve high organizational

performance.

At present, the process of digital

transformation has reached such a scale that

commercial organizations, especially medium and

small enterprises, need to constantly apply modern

technologies in order to be a successful and

competitive company that increases profits,

because customers currently prefer those

companies with which they have enough easy to

operate.

However, a business cannot independently

implement digital transformation, as this is a rather

laborious process that requires certain knowledge

and a serious approach. Among the main

advantages of digital transformation, the

advantages presented in Figure 1 should be

highlighted.

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Fig. 1: Benefits of digital transformation for

business entities [13,2]

Thus, digital transformation plays a huge role in the

development of small and medium-sized

businesses, as it has a lot of advantages, so today

businesses need to introduce new technologies in

order to increase their competitiveness and attract

new customers.

5 Analysis of the Effectiveness of

Digital Transformation and

Sustainability of Small and

Medium-sized Enterprises in

Azerbaijan

Currently, more and more states are interested

in large-scale digitalization of the economy,

especially during a pandemic, as the digitalization

of the economy has certain prospects for business

development. The coronavirus infection has

changed the rules of the game for the development

of the global economy, and most of the classic

forms have gone forever, while they have been

replaced by new formats and tools that have

developed in rapidly changing market conditions.

Azerbaijan has been working for several years

on the development of digital potential, which is

being actively introduced not only into large, but

also medium and small businesses. Digital

transformation allows a firm to create new products

and services via Internet. A company can

implement online marketing strategies, develop an

electronic customer database, perform financial

transactions online, and analyze performance data.

Such a strategy makes a large number of

organizations easily accessible and affordable. It

also helps to increase brand recognition and loyalty

in the mind of customers.

The application of internet technology ensures

fast delivery of goods and services in all parts of

the world. Therefore, many people around the

globe can access quality services and goods at low

costs. On the same note, these firms have adopted

advanced business models to meet their needs.

They include corporate social responsibility (CSR),

global expansion and localization, lean systems,

outsourcing, etc. Moreover, most organizations

have embraced cloud computing and IT solutions.

Thus, the need for efficient storage structures

becomes critical.

In addition, when a business deals with

multiple operational units, this can be done through

collaboration among different entities or groups. As

a result, it can acquire the necessary skills.

At the same time, the emergence of e-business

also provides ample opportunities for SME’s to sell

their products and services across borders.

Currently, the state has a Strategic Roadmap for the

development of financial services in Republic of

Azerbaijan , which was approved by the President

on December 6, 2016. This strategic roadmap

defines the prospects for the development of

financial services, not only in the banking system,

but also in the business environment. The pandemic

has contributed to the acceleration of the digital

transformation of the Azerbaijani economy, thanks

to digitalization, not only online sales have

increased, but also the use of information and

communication technologies in small and

medium-sized enterprises in various fields of

economic activity has increased.

In addition, Azerbaijan currently has an action

plan for the development of the domestic economy

and entrepreneurship, which was approved by the

Cabinet of Ministers in 2020 to implementation of

the Decree of the President of Azerbaijan, covering

three points:

Support for economic growth and

entrepreneurship in the state;

Ensuring employment and social security;

Ensuring the development of the domestic

economy and finances by attracting foreign

investment to the state.

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According to the State Statistics Committee of

Azerbaijan, more than 99% of business entities in

the state are small and medium enterprises . So, at

the beginning of 2021, 92% of microbusiness

enterprises were registered , 5.3% are small

enterprises and 2.1% are medium enterprises

[14,17,2].

Figure 2 shows the structure of registered

enterprises in the territory of Azerbaijan according

to the State Statistics Committee.

Fig. 2: Structure of SMEs in Azerbaijan in 2020, %

[14,17,2]

The number of individual entrepreneurs who

are registered to engage in entrepreneurial activities

in the state is increasing annually, so at the

beginning of 2021 their number in the country

exceeded 1 million people. Currently, most

business entities are engaged not only in trade and

services, but also in construction, processing

industry, agriculture and other types of business.

During the pandemic, the state has developed

various mechanisms to support small and

medium-sized businesses. At present, measures to

support the sale of products of small and

medium-sized businesses, especially in retail chains

, have been expanded, the production of non-oil

products is being stimulated , and

import-substituting industries are being created.

In 2020, an online sales platform was

launched to expand sales opportunities for small

and medium-sized businesses and promote their

goods and services not only in the state, but also in

foreign markets.

During the pandemic, more and more

businesses began to use information and

communication technologies (ICT). Figure 3 shows

the dynamics of the number of SMEs in Azerbaijan

with access to the Internet.

Fig. 3: Number of SMEs in Azerbaijan with

Internet access [14,17,2]

Thus, more and more companies began to use

modern information technologies to increase

turnover and attract new customers. During the

spread of coronavirus infection in Azerbaijan, more

than 50% of entrepreneurs switched to online sales.

Before the spread of the pandemic in the

country, only 10% of entrepreneurs carried out

online sales of goods, but today the number of

online merchants has increased fivefold. These

figures show that the transition to online sales in

the country is producing effective results.

6 Discussion of the Positive and

Negative Aspects of Digital

Transformation and the Sustainability

of Small and Medium-sized

Enterprises in Azerbaijan

The introduction of new technologies is also

primarily a priority for entrepreneurs, as digital

technologies expand the boundaries of business.

The creation of a digital economy opens up

significant opportunities for consumers, the state

and society as a whole. Singapore, China, South

Korea, New Zealand and Denmark are among the

leading countries in the implementation of the

digital economy in the world.

For 12 months of 2020, compared to 2019, the

turnover of e-commerce in the state increased by

3.1 billion manats , which is 2.4 times more than in

2019. At the same time, the retail trade turnover

increased from 39391.7 million manats to 40166.5

million manats , or by 2.1% compared to 2019 (Fig.

4).

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Fig. 4: Turnover of retail trade of SMEs in

Azerbaijan from 2018-2020, million manat

[14,17,2]

Azerbaijan will be able to develop more

intensively in the future, using its advantageous

geographical position (Regional Energy Center,

Center for East-West, North-South Transport

Corridors), rich natural and human resources, as

well as introducing new world trends in the field of

ICT in the country.

Thus, digitalization and building a digital

economy can open a new window for the

sustainable development of the country.

Today's CIOs are challenged to change their

mindset as the rules of the game change. A

common strategy is to find an outside consultant

from a third party or organization that specializes in

a particular need.

However, the transition to digital technologies

is not so easy, as many entrepreneurs point out. The

main problems faced by managers are lack of

funds, budget constraints (24%) [15].

The digital transformation of small and

medium enterprises does not necessarily require a

radical transformation of the business model;

transformation can be carried out gradually and at

different levels of change. The implementation of

digital transformation has made companies more

agile, which has led to a more flexible allocation of

resources. However, this flexible implementation is

considered costly and the survival of the enterprise

is at risk if it is not flexible. In addition, there is no

“one-size-fits-all solution”, so companies must

develop their own individual digital transformation

path, considering “what strategy” to use and

“where it should be applied”.

The choice of strategy and the success of

digital transformation depend on various factors,

such as existing digital capabilities of firms,

learning culture, history of digital adoption, ability

to grow with supporters, etc.

7 Conclusions and Recommendations

Thus, the rapid transformation of digital

technologies provides a promising competitive

advantage, which is associated with high risk.

However, in a digital environment, this competitive

position will not last long, as there is room for

imitation by competitors. This type of

transformation requires companies to create a

digital foundation. This is coupled with digital

vision and strategy development supported by a

culture of learning and achieving a certain level of

digital literacy [4].

The pandemic has accelerated the transition

from physical intermediaries and asset owners to

digital platform producers that exclude

intermediaries from the transaction chain.

Competition on Russian digital platforms has

already increased compared to the beginning of

2020. SMBs that haven't started this transformation

process are reducing their opportunities for

effective collaboration and business success in the

future, as the rules of the game won't change.

Over the years, SMEs have been gradually

moving towards digital technologies, gradually

adapting to the changing behavior of their

customers. Now the pandemic has accelerated the

need to go digital. Simply put, organizations must

have a digital presence to remain relevant to

customers and competitive in the marketplace.

The evolution of e-business activities also

enhances the role played by the employees and

other stakeholders at both local and international

level. Generally, this movement tends to shift from

traditional ‘one-to-many’ operation model to

‘many-to-many’ operation model [16]. The move

will require the restructuring and adaptation of

traditional processes to ensure efficiency and

flexibility. Nonetheless, many organizations believe

that the current economic environment has

presented new challenges [17]. Further studies

indicate that we need to consider the concept of

sustainable business development. Sustainability

entails the consideration of economic,

environmental, social and cultural factors.

The legacy of the poet Nizami touched on

economic relations. Nizami considered it necessary

to act in conditions of mutual assistance and

assistance with nature. the social nature of

economic relations between people, reminds us that

they depend on each other, and as a result, all

together create wealth and serve each other [18].

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Such factors should guide the decisions made

by modern scholars, companies, etc. The future of

business is uncertain, but organizations should take

steps to mitigate risks associated with uncertainty.

Notably, these firms should adopt effective

approaches to sustain the industry since they are

unable to predict what will happen in the near

future. Companies should therefore be ready to deal

with change, stay successful, and grow along the

way. However, it is imperative to know what has

worked for others, learn from them, and act in

concert with them to achieve optimal results in the

long run.

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(Attribution 4.0 International, CC BY 4.0)

This article is published under the terms of the

Creative Commons Attribution License 4.0

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WSEAS TRANSACTIONS on ENVIRONMENT and DEVELOPMENT

DOI: 10.37394/232015.2022.18.78

Arzu Abilova, Basti Aliyeva

E-ISSN: 2224-3496

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Volume 18, 2022