Sadly, the corona virus is now reaching the next step of transmission. It is a human tragedy with hundreds of thousands of concerned people. Right now, dated 9 of March, the number of confirmed cases around the world has exceeded 110 000.
We are also seeing significant economic consequences. Many businesses and economies have already been hit, and it will most likely continue. 109 countries have reported cases to this date, and these countries sum up to the majority of the global economy.
The Global Economic Scenario
Far from only China’s economy is being disturbed by the slowdown. Most countries and global companies are in fact impacted in one way or another.
A likely scenario is that the global GDP growth will decrease by 2.5 points for 2020 due to Covid-19, resulting in a global recession for the year. In this scenario:
- China’s capacity will be back fully by mid Q2 2020.
- Significant increase is other parts of the world (primarily rest of Africa, India and North America)
- Consumer Confidence will be significant lowered to the end of the year
The Business Impact for Companies
Many companies worldwide are concerned right now. 38% of all the reporting companies in the US mentioned Covid-19 in their presentations during the first two weeks of February.
The most common business impacts for global companies that happened this far are the following:
- Firstly, production disturbances and lack of ability to supply directly or indirectly and thereby loss of orders and sales. Many companies are currently reporting significant weaker Q1 or Q2 because of the lack of direct supplies. Apple, P&G and Husqvarna are example of such companies. In fact, 51 000 companies worldwide have direct suppliers in China. Indirectly, they are impacted even more since the companies’ re-planning of their supply chain and routes has led to an unbalance for the transport sector. Consequently, there is a lack of transport capacity for certain areas (e.g. lack of containers and staff)
- Declining sales in the infected areas for both B2B and Retail. H&M has closed 334 of their 520 retails stores in China, and has significant lower traffic than usual for the ones that are still open
- Specific affected industries are hit in heart of their core business such as traveling, tourism and hospitality
The first point, production and supply chain disturbances, is the major impact as it concerns most companies and is very complex.
Swedish companies are affected by this to large extent. Large manufacturing companies have an exposure to Asia with about 20-30% where China has significant contribution to this. More than 10,000 companies in Sweden have trade relations with China, and more than 600 Swedish companies have invested and set up factories in the country.
The supply chain is complex due to its multilayer sourcing partners. “Few, if any, have complete understanding of the locations of all the companies that provide parts to their direct suppliers”. 1)
There are also a number of business impacts that hasn’t happen yet but that we believe is likely to happen in a near future such as 2):
- In some industries, like some sub-segments to retail, the supply has worked out quite well, because the products that we bought up to today are the ones that arrived to the stores during the last month. However, the next batches that will arrive the coming 1-2 weeks are much more uncomplete.
- Other capabilities in the organization that manage supply chain will also be affected. One such is the IT infrastructure. The Covid-19 risks of the worlds no 1 offshore destination India are significant, that can likely affect the operations on several IT services
Moves to make in this economic slowdown
The Covid-19 situation do have some opportunities for companies that choose to look at it that way and that are quick in execution. Some of these are:
- Take a position in the market both in terms of sustainability as well as customers. Can you find better supply chain solutions and shorter lead times than your competitors?
- Speed up strategic supply chain initiatives and decisions, e.g. multi sourcing
- Learn to be truly connected and collaborate smooth with video meetings, and at the same time reduce travelling expenses and reduce carbon footprint
- Increase the communication with customers by tighter contacts and by working and interacting together in tough times like these
Whether companies will make the best of these circumstances or not, is mainly about acting now and keeping a strong execution.
What’s the next immediate steps?
The first step for companies is to conduct a holistic assessment of how their business is impacted, it’s consequences and create an action plan. The primary stakeholders at this stage should be employees, company, customers.
The next step that we recommend at Centigo is to establish a COVID-19 execution team to drive the action plan forward. The working model needs to be designed in an agile way for best effects, and the execution team should report to the CEO.
How to succeed with these steps?
1. The key is to do a quick analysis that covers not only the coming 2-3 weeks, but also covers a mid-term horizon on 3-6 months down the line. Our analysis that we use as a starting point in this kind of analysis covers the followings: 3)
2. When you create the dedicated execution teams you must ensure they priority the situation by freeing up their capacity. Otherwise, you need to take external execution support.
Don’t hesitate to contact us for further discussions!
1) HBR article
2) Centigo Analysis
3) Centigo COVID-19 model