What can we learn from the economic impact of the Coronavirus?

According to the New York Times the Coronavirus outbreak is causing damage and disruption to multinational brands and business. What will this mean for the longer term and what can businesses learn from the phenomenon?

The main cause of the issues is our global reliance on China as the source of goods and materials. With more than 75,000 cases across China, the focus is now on containing the illness as much as possible – which means that whole cities have shut down with people asked to stay in their homes.

Causes of global impacts

This of course means that manufacturing has halted and tight travel restrictions are in place in and out of China. Wuhan, the city where the virus originated, has been in total lockdown. As an important travel hub, this is affecting global supply chains. 

China is a major consumer market too, and the fact that people are unable to eat out or go shopping is affecting company revenues. Sportswear brand Under Armour is expecting a reduction in sales worth $50-60 million in the early months of 2020, while Starbucks, McDonalds and Pizza Hut have closed between a third and half their branches in China. Airlines and other travel operators worldwide are being hit hard.

Yet the supply chain implications are even wider reaching. Apple has confirmed that the sale of smartphones will be affected by the loss of production time in China and numerous car manufacturers have been significantly affected by the lack of parts arriving from Chinese suppliers.  

Factories are now beginning to reopen, and it’s estimated that capacity should return to around 80 per cent by the end of February, according to China Briefing. But the knock-on effect of the virus is still difficult to quantify, as the supply chain gaps are only just beginning to bite.

Managing the impact

The next few weeks will be crucial in how the pandemic progresses. China believes it is yet to turn the corner and South Korea is being hailed as a ‘super-spreader’. There are growing reports of the virus in Iran and Italy. While Donald Trump has confidently stated that the issue is well under control, the number of cases in the US is rising. The virus is also being associated with drops in the US stock market.

But what can companies learn and do to manage the impact of Coronavirus and other crises in the future?

Crisis management

Most well-structured businesses devote valuable time and resource in planning for crisis situations. And while you may not anticipate the exact causes of disruptions to your business, you should be aware of the threats that pose the biggest impacts: supply chain disruption, the loss of a key market or significant reduction of your workforce.

This isn’t an unprecedented situation, either. Avian Flu and Sars both had economic impacts that ran into billions, and both occurred within the past two decades.

Business leaders should take this opportunity to examine their crisis plans and stress test them. Is it enough to contain the impact, or do you have robust alternative strategies? Can your source goods and materials from suppliers across different continents to protect against future impacts on China?

Risk management is a key area where WIL Group frequently provides senior interim resource. If it’s time you assessed your risk strategy we can help. Get in touch today.

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