Using Government Data and Machine Learning for Predicting Firms’ Vulnerability to Economic Crisis

Abstract

The COVID-19 pandemic is expected to lead to a severe recessionary economic crisis with quite negative consequences for large numbers of firms and citizens; however, this is an ‘old story’: recessionary economic crises appear repeatedly in the last 100 years in the market-based economies, and they are recognized as one of the most severe and threatening weaknesses of them. They can result in closure of numerous firms, and decrease of activities of many more, as well as poverty and social exclusion for large parts of the population, and finally lead to political upheaval and instability; so they constitute one of the most threatening and difficult problems that governments often face. For the above reasons it is imperative that governments develop effective public policies and make drastic interventions for addressing these economic crises. Quite useful for these interventions can be the prediction of the vulnerability of individual firms to recessionary economic crisis, so that government can focus its attention as well as its scarce economic resources on the most vulnerable ones. In this direction our paper presents a methodology for using existing government data in order to predict the vulnerability of individual firms to economic crisis, based on Artificial Intelligence (AI) Machine Learning (ML) algorithms. Furthermore, a first application of the proposed methodology is presented, based on existing data from the Greek Ministry of Finance and Statistical Authority concerning 363 firms for the economic crisis period 2009–2014, which gives encouraging results.

Appendix. Definitions/questions of the dependent and independent variables

Dependent variable
SALREV_RED	Total percentage of change of your sales (increase or decrease) during the economic crisis of 2009–2014
Independent Variables – Strategic Orientations
STRAT_CL	To what extent does your business strategy include low prices in comparison with the competition? (five levels ordinal variable)
STRAT_DIF	To what extent does your business strategy include high quality of products/services in comparison with the competition? (five levels ordinal variable)
STRAT_INNOV	To what extent does your business strategy include introduction of new products/services (with significant innovations)? (five levels ordinal variable)
INNOV_PRS	Over the last three years did your firm introduce product innovations (= new or significantly improved products)? (binary)
INNOV_PROC	Over the last three years did your firm introduce process innovations (= new or significantly improved processes)? (binary)
NEW_PS_P	What percentage of your total sales revenue (turnover) in 2014 came from new products/services that were introduced in the market during the three previous years? (continuous)
IMPR_PS_P	What percentage of the total sales revenue (turnover) in 2014 came from products/services that you had introduced before 2012, but were improved significantly over the last three years? (continuous)
INN_PRSD	Did you introduce methods/process innovation in the goods production or services’ delivery processes in the last three years? (binary)
INN_SSWM	Did you introduce methods/process innovations in the sales, shipment or warehouse management processes? (binary)
INN_SUPP	Did you introduce methods/process innovations in the support processes (e.g. in the equipment maintenance ones) (binary)
R&D	Did your firm conduct R&D (Research and Development) in the last three years? (binary)
EXP_P	Percentage of exports in firm’s sales revenue in 2014 (contin.)
Independent Variables – Human Resources
EMPL	Number of employees at the end of 2014 (including any temporary employees, part-time, etc., who should be counted as full time equivalents) (continuous)
EMPL_TERT	Percentage of tertiary education graduates in the personnel of your firm (continuous)
EMPL_VOCT	Percentage of vocational/technical education graduates in the personnel of your firm (continuous)
EMPL_HIGH	Percentage of high school graduates in the personnel of your firm (continuous)
EMPL_ELEM	Percentage of elementary school graduates in the personnel of your firm (continuous)
EMPL_COM	What percentage of the employees of your firm use computer in their work (e.g. PC, terminal, or laptop)? (continuous)
EMPL_INTRA	What percentage of the employees of your firm uses the intranet (internal network) of the firm in their work the? (continuous)
EMPL_INTER	What percentage of the employees of your firm uses Internet in their work? (continuous)
EMPL_ICT	Percentage of qualified ICT personnel in the workforce of your firm (continuous)
Independent Variables – Technology
D_ERP	To what extent are Enterprise Resource Planning (ΕRP) systems used in your firm? (five levels ordinal variable)
D_CRM	To what extent are Customer Relationship Management (CRM) systems used in your firm? (five levels ordinal variable)
D_SCM	To what extent are Supply Chain Management (SCM) systems (=systems that support the electronic exchange of information with customers, suppliers and business partners, such as inventory levels, orders, production, shipments, invoices, etc.) used in your firm? (five levels ordinal variable)
D_BIBA	To what extent are Business Intelligence/Business Analytics systems (=systems that support advanced forms of processing business data, which lead to the creation of useful reports, as well as various types of models that aim at the support of decision-making – this can be either a separate software, or a module of an ERP or CRM system) used in your firm? (five levels ordinal variable)
D_CS	To what extent are Collaboration support systems (=systems that support the internal collaboration between employees of the firm, and/or external collaboration with customers, suppliers and partners, offering capabilities of sharing various forms of content (e.g. text files, images), forum, instant messaging (and other forms of communication), project management, etc.) used in your firm? (five levels ordinal variable)
E-SAL	Do you conduct online sales of products/services through the Internet? (binary)
SM_SPRO	To what extent do you use social media for sales promotion? (five levels ordinal variable)
SM_OPCO	To what extent do you use social media in order to collect customers’ opinions, comments and complaints about your products or services? (five levels ordinal variable)
SM_IMPS	To what extent do you use social media in order to collect ideas for improvements or innovations in your product or services? (five levels ordinal variable)
SM_PERS	To what extent do you use social media in order to search for and find personnel? (five levels ordinal variable)
SM_INTC	To what extent do you use social media in order to support the internal exchange of information and co-operation among the employees of your firm? (five levels ordinal variable)
SM_IPAR	To what extent do you use social media in order to support the external exchange of information and co-operation with other firms (e.g. partners, suppliers, customers, etc.)? (five levels ordinal variable)
CLOUD	Do you use cloud computing? (binary)
CL_IAAS	To what extent you use IaaS (Infrastructure as a Service = use of remote computing power and storage through the Internet)?
CL_PAAS	To what extent you use PaaS (Platform as a Service = remote use of the above plus database management systems and application development tools/environments/languages through the Internet)? (five levels ordinal variable)
CL_SAAS	To what extent you use SaaS (Software as a Service = use through the Internet of remote application software that run on provider’s systems)? (five levels ordinal variable)
Independent Variables – Structure
ORG	Over the last three years did your firm use organic structural forms of work organization (such as teamwork and job rotation)? (binary)
Independent Variables – General
SECT	Firm’s sector
COMP_PROF	How good was the financial performance of your firm over the last three years in comparison with your competitors in terms of profitability? (five levels ordinal variable)
COMP_SALR	How good was the financial performance of your firm over the last three years in comparison with your competitors in terms of sales revenue? (five levels ordinal variable)
COMP_MS	How good was the financial performance of your firm over the last three years in comparison with your competitors in terms of market share? (five levels ordinal variable)
COMP_ROI	How good was the financial performance of your firm over the last three years in comparison with your competitors in terms of ROI (return on investment)? (five levels ordinal variable)