How can businesses stay afloat amidst the Covid-19 crisis?
The coronavirus outbreak is first and foremost a human tragedy, affecting hundreds of thousands of people. It is also having a growing impact on the global economy. This piece intends to provide business leaders and relevant stakeholders a perspective on the evolving situation and implications for companies across various industries.
The head of the International Monetary Fund (IMF) informed that it is clear that the global economy has now entered a recession that could be as bad as or worse than the 2009 downturn.
“A key concern about a long-lasting impact of the sudden stop of the world economy is the risk of a wave of bankruptcies and layoffs that not only can undermine the recovery but erode the fabric of our societies,” said the IMF Chief.
According to a simulation run by the IMF, in the best case scenario, the global economic growth will slow down to 1.6% in 2020 but will bounce back to 3.2% in 2021. The simulation has also calculated a risk scenario in which the virus spreads further, and if the latter scenario is considered, the worst outcome will be as follows: Economic growth in China and the global economy will fall to 0.2% and 0.7% respectively.
Global value chain under threat
The Chinese economy is now much more closely interlinked with the rest of the world than it was 10 to 20 years ago. For many countries, China is now (i) an important export market, (ii) a source of tourism, and (iii) a supplier of intermediate goods.
Over the years, the value chains of international businesses have become increasingly fragmented and spread across the world, and China has become the world’s factory. For example, a major proportion of all consumer electronics (mobile phones and laptops) is now made in China, as are the batteries for many electric cars and the raw materials for certain medicine.
Production in China has slumped as a result of the virus outbreak. The national vacation for the Chinese New Year was extended and large areas were quarantined (especially in the province of Hubei). Production in a substantial portion of the economy has grinded to a halt. Because production in China has slowed substantially as a result of the virus outbreak, many goods are no longer available in other countries and businesses are being forced to rely on their inventories.
The longer the lack of supply of these products lasts, the greater the likelihood that shelves will be empty or scarcity which will lead to higher prices that consumers will feel in their wallets. There will also be delays in production at businesses using intermediate goods made in China. In many cases, it will not be easy to find an alternative of equivalent quality at very short notice. And if a key component is missing, the entire value chain could be affected.
In summary: The global value chain, in which China plays a crucial role, will be seriously disrupted by Covid-19 and large adverse economic effects are expected around the globe.
Global trends on consumer behaviour
We did a secondary study to understand the global scenario on consumer behaviour and we have tracked seven major trends:
1. Concern is widespread, but younger consumers are worried most. Coronavirus is on the minds, screens, and feeds of young consumers -- and for good reason.
2. According to a survey by GlobalWebIndex, 8 in 10 consumers have changed their behaviours because of the virus. Understandably, the most popular response is to wash hands more frequently.
3. Personal financial concerns aren’t at the top of anyone’s mind (yet). Priorities for the consumers are:
4. Knowledge levels vary -- especially by age.
When we asked consumers to identify fact from fiction when it comes to coronavirus, we found levels of concern were slightly lower among older age groups.
Baby boomers have been found to be likely to know how to minimize the risks of infection (eg, by avoiding touching their eyes, noses, or mouths with unwashed hands).
5. Work routines are already changing, especially for millennials. Currently, millennials are the most likely to report altering the way they commute, as well as increased levels of remote working.
6. There’s considerable enthusiasm for digital health appointments. Digital/virtual health appointments have been suggested as one way to deliver health assistance while minimizing the spread of the virus. And there’s considerable consumer support for this: Over 6 in 10 believe they’re effective, and would consider using them.
7. Fears of a global recession are pronounced.
The coronavirus outbreak is causing fluid and unpredictable changes in day-to-day lives, and businesses in Bangladesh are understandably worried about the impact it will have on them. One key uncertainty faced by all the businesses is the time it will take for businesses to get back to normal.
Under these circumstances, we asked a number of organizations two questions:
What is the impact of the coronavirus outbreak in their company?
How are they planning to combat the situation?
The answers we received from the organizations are as follow:
The cofounder and CEO of an eCommerce platform said: The company is the country’s largest B2B and wholesale eCommerce. The company -- one of top 5 in terms of raising foreign investment -- caters to enterprises and SME retailers.
Being an eCommerce, the business is running almost as usual. Online retailer and customer orders for essentials like cooking oil and hygiene items like antiseptics and sanitizers have grown multiple times. We are trying to cater to as many customers as possible at below-MRP prices in wholesale quantities, but also keeping a cap so that maximum clientele can be reached.
While head office teams are working from home, warehouses and delivery are on but maintaining strict health guidelines. Our core revenue has shrunk from factories and enterprises -- down by as high as 80%. But the B2B2C model is working well for essential items of grocery, etc.
The managing director of a marketing communications agency said: We are a full service advertising agency that has been in the communications industry of the country for over a decade now. With the onset of corona globally, we foresee a dramatic cut in business in the foreseeable future.
Our business depends on our clients’ business and the state of the country’s economy. With unfavourable impact on business and the economy, our business too, will surely bear the brunt. In such a context, we shall try to sustain our HR and continue to make the boat stable, but we may not have any option other than downsizing or bringing in efficiencies of work by utilizing available resources in the maximum possible way.
The director of a restaurant chain said: The restaurant is a burger joint with five outlets in Dhaka and Chittagong, employing more than 130 people. The popular burger brand tops the ranking in most food delivery apps in terms of order numbers and sales volume with a high footfall in their outlets as well.
Due to the novel coronavirus outbreak, both its delivery and dine-in sales have gone down significantly. The outlets are now closed according to the directions of the government. The entity was undergoing an expansion phase with three more outlets planned to be opening in early April.
In this scenario, the business faces difficult times to pay off its monthly fixed costs and the instalments of loans. It has already requested landlords to adjust the rent with the advance security deposits for three months, offered the employees one week of voluntary non-paid leave, and extended its credit limits with the suppliers.
But even after that, if business goes back to its previous condition in a month’s time, the company will have to bear the losses for the next couple of months to get back to business as usual.
The founder and CEO of a health care system said: Our health care system provides same-day specialist consultations. Being a physician entrepreneur provides the domain expertise in the health sector to leverage the value of healthcare optimization in the private sector.
Covid-19 decimated every global health system. People are more in need of digital health solutions than ever before. Although several patients are active users, the overburdened specialists are not able to be exposed to our digital marketing strategy.
This has forced us to collaborate with a surgical mask supplier to promote discounted masks to doctors in the attempt to incentivize the on-boarding process, as cost effectively as possible given the lockdown circumstances.
The business and market development coordinator at an independent foundation for international development cooperation said: I am a project manager at a skills development project of Bangladesh. As a project, we work closely with RMG factories, construction contractors, and training centres in order to facilitate the training and employment of poor men and women in the RMG and construction sectors.
Due to the ongoing crisis, both RMG factories and construction companies have stopped hiring new workers. A good number of young men and women who left their villages to find work are currently sitting idle after completing their training. As a project, we are monitoring the situation on a continuous basis. Our aim is to facilitate job opportunities for these trained resources as soon as the situation improves.
The outbreak is moving quickly, and the business environment is shifting quickly. Therefore, the first priority for any business should be to quickly stabilize cash and liquidity and take a realistic view of current options.
This means identifying and acting on opportunities for strategic, operational, organizational, and financial change. Establish solid ground for a turnaround by assessing liquidity position and creating a stakeholder management plan.
Covid-19 is likely to produce distressed situations for senior management of any organization, and under such circumstances, stakeholders (primarily investors) often seek additional information or resources to help rebuild their confidence.
By understanding the needs of borrowers, lenders, and share-holders, and managing stakeholder communications, a business can stay on top of issues and make informed decisions. For now, businesses should assess short-term liquidity requirements and find ways to quickly preserve value and address potential risks to stability.
Kaizen CRS is a Bangladesh-based consultancy firm specializing in management consulting, business advisory services, capacity development workshops, and technical assistance to facilitate business and development agencies. The global insights were a part of Kaizen CRS’s desk research.