The novel coronavirus (COVID-19) pandemic is one of the greatest human tragedies that the world is still trying to find a solution to. It was declared a pandemic by WHO (the World Health Organization) on March 11th, 2020 wherein WHO said with certainty that the virus would spread across the globe. Today, hundreds of thousands of people around the world have been affected with this disease, and thousands have already succumbed to it. While China is now reporting falling numbers and is opening their factories once again; USA, the European nations, and other parts of the world are still seeing increasing numbers of Covid-19 cases – some, in fact, recording exponential increase.
A nation can choose one of the two measures to control the spread of the virus.
- Use extreme measures – a complete lockdown like China and India
- A more gradual control that was implemented in South Korea through stringent implementation public-health measures, using technology to carry out contact tracing, and tracking of cases in real-time
Without either of these, the initial control cannot be stopped. This will lead to outbreaks to such an extent that the ratio of healthcare facilities and patient numbers will become disproportionate.
The Economic Impact
The outbreak of this pandemic will have a tremendous impact on the global economy. However, the governments of the various nations, businesses, and individuals themselves do have the power to change the path that this pandemic takes.
In the world of business, too, leaders must have a clear perspective of what they are up against and come up with a plan to effectively deal with its implications. This article talks about the predicted implications that the COVID-19 pandemic will have on the world’s market.
The Consumer Behaviour
Given that the virus is highly transmissible, the cases are likely to grow. If this happens then the drop in demand will continue. This is because:
- Studies are revealing that the fatality rates of this virus is low in children and in adults who are of a working-age. Yet, out of concern for aging parents and friends, they will move themselves away from social activities
- Older people with underlying conditions will also start to stay at home
Also, to combat the spread of the virus more than it already has, countries are now
recommending:
- Full lockdown
- Self-quarantines and social distancing
- Travel restrictions
Due to this, consumers are now more at home and spending less than before. This means many organizations are now working on thin working-capital margins.
Hence, as a result of this significant reduction in consumer spending, a recession has begun. Since this recession has set in around the second quarter of 2020, a slump is likely to continue till Q3.
The Adverse Effect on Businesses
If all nations are unable to control the virus the way China did, there is the likelihood of a global slowdown occuring. It is predicted that the demand shock will reduce the global GDP growth for the year to between 1-1.5%. A global slowdown will affect the small and mid-size organizations the most. Also, all sectors will not be equally affected. The ones who are, and will continue to be, hit the hardest are aviation, travel, and tourism. Some of the ways that businesses are being adversely hit is listed below.
Blunders due to Lack of Previous Knowledge
Not all organizations have prior knowledge of handling such emergency situations. Many at the top level haven’t even gone through simulation exercises of similar situations. Hence many businesses are crumbling as they are unaware of what policies to execute to stay afloat.
Loss of Revenue
Lower consumer spending has adversely affected the revenues that businesses are generating. Due to this workers are losing their jobs and unemployment is on the rise.
Bankruptcy
Some organizations have begun to inch towards bankruptcy. Despite the prevailing low interest rates, corporate bankruptcies are putting a huge pressure on the financial system of the countries. A McKinsey report says that European and US economies will not see a genuine recovery till the last quarter of the year. The GDP has seen a fall in most major economies and the world is inching towards a global financial crisis that is akin to that of 2008–09.
Loss of Employees
There are many IT companies that are still very conservative in their thoughts. Hence, while others have begun a work from home, these organizations are slow in rolling out employee protective plans. Added to this is the fact that during shift timings, the work place is not equipped with proper facilities like temperature screening. With safety being compromised, they have begun to lose their workforce.
Disruptions in Supply-chain
Since the outbreak, there have been factory shutdowns in China. Now, other nations are doing the same. With China’s condition now slowly improving, businesses have entered the early phases of recovery. Yet, there are still many restrictions due to which the supply-chain is still disrupted. For example:
- Low availability of migrant labor. The low labour means shipping of goods from the factories to the markets is taking more time, causing further delays and losses
- Some companies are facing inventory shortages
- Customers are cancelling orders
Over Optimism about Demand Recovery
Some companies are being over optimistic about a quick recovery. They believe that the downturn will be only short lived. Due to this correct policies are not being implemented. As a result they are slowly inching towards greater losses. For example, divestment options are still available before recession sets in completely. Yet, instead of completing it now and availing of a higher price, they are putting it off.
Lack of Team Integration
Across many organizations, different teams are responding to the pandemic in their own way. For example the marketing team is busy keeping the customer base in control while the supply chain is being handled by the procurement teams. However, these teams are not integrated in their approach. Due to this, there is a lack of focus on what the long term goal will be.
Steps Businesses are Taking
The WHO and governments of various nations alone cannot fight coronavirus. Organizations across the world must also play their part. Those who display both practicality and stay morally right are the ones who will stand out.
Protecting the Workforce
Organizations need their workers. So, they are trying various methods to keep their spirits up. Some steps that are being taken are:
- Introducing work from home and helping with VPN, laptops, availability of broadband and others
- Having various channels of communications open and maintaining confidentiality
- Introducing shift timing so that only a few workers are present on the premises at a particular point in time
Not all, however, is being able to come up with effective employee safety policies. This is true especially for those that have not yet been directly hit by the virus pandemic.
Supply Chain Management
Companies are engaging with suppliers and maintaining transparency. They are also assessing their inventory and making changes in:
- The number of new orders
- The way products are being stored
- The routes being taken to receive the products
- The way critical parts are being used
Some companies have begun to pre-book rail/air-freight capacity. Also, organisations are deciding on the extent that they will expose their supply chain to geographies that are experiencing community transmission.
With social distancing the call of the hour, consumers are now buying more products online. Thus organizations should invest in online distribution of their goods
Demand and supply of critical products is also being monitored so that the production and sourcing plans of these items stay streamlined.
Reaching out to Customers
No business can be successful without a huge customer base. Hence, even in this trying time, companies are reaching out to customers in various ways. Also, companies are likely to see small spurts in demand since people might get into the hoarding mode as well. This will hold true for FMCG products and medicines. Policies need to be realigned to meet this change in consumer demand as well.
- Customer-teams are being trained on how to deliver products to the customers while maintaining safety.
- Messages are being communicated to customers, via different media, on how best to receive products.
- Apologies are being sent in case of non-delivery of the products.
- Customers who have pre booked products or services are being given a refund in case of non-delivery or if they choose to cancel. For example, those with flight bookings are being given a refund in case they don’t want to travel or if flights are being cancelled due to travel restrictions.
- Companies are trying to deliver to customers using the existing stock till production can start again.
- Organizations are finding newer ways to reach out. For example, the White House reached out to Walmart to assist with testing of drive-thrus.
Remodeling the Finances
With revenues getting adversely affected, organizations need to tailor their finances to be able to deal with the storm. Teams should be set up who can analyse cash flow and profit and loss statements and draw up a plan to protest the business. Focus should now be on ways to optimize accounts payable and receivable, cutting unimportant cots, mergers and acquisitions, and divestments.
Changes in Production
Some organizations have stopped what they used to produce earlier and are now producing medical masks and sanitisers. These efforts will not only keep their businesses running but they will also be regarded as organizations who came forward to help during these trying times. There are big names too who have also altered their production. For example, LVMH is now producing hand sanitizers instead of perfumes, Johnson & Johnson has contributed surgical masks to Chinese hospitals, and IKEA is assisting with making kit-out hospitals.
Staying Optimistic
How or when the COVID-19 pandemic will end, no one knows. hence it is imperative that companies act now, stay positive and try to protect their businesses and employees. This is the only way that they would be able to reduce the adverse effects of the outbreak as much as possible.
