On the 11th of March 2020, the World Health Organization (WHO) officially declared the outbreak of coronavirus as a global pandemic.
On the 11th of March 2020, the World Health Organization (WHO) officially declared the outbreak of coronavirus as a global pandemic. The outbreak has spread like wildfire in more than 100 countries, accounting for more than 422,000 worldwide cases, and more than 18,000 deaths. With such a massive and unprecedented threat, economists are predicting a substantial contraction of the global economy, for at least the first 6 months of 2020, as measures of containment are resulting in major collapses in standard economic activity.
Impact of the Chinese Shutdown on Global Supply Chains
Most Chinese and multinational companies have witnessed major disruptions to their supply chains as the Chinese government extended the duration of the shutdown for businesses, factories, and air travel. Consequently, disruptions in the manufacturing sector including functional textiles, automobile, household appliances, and hi-tech goods have been affected.
These disruptions are expected to have an extended effect on the global supply chains, as companies will find it difficult to meet their needs through alternative suppliers. Further, even as China moves towards the road of recovery, producers in Europe and North America have shut down operations, as the outbreak continues to spread. The situation is expected to continue in the coming weeks.
Major Retailers Close Shop
Major retailers around the world have closed doors. Major retailer brands such as Walmart are expecting poor financial performance during the first quarter of 2020 owing to the epidemic. A key strategy for large scale retailers would be to reinforce delivery services through collaboration with smart logistics companies. In addition, most such retail locations are likely to remain open, but on reduced operational timings.
On the other hand, luxury item retailers such as Burberry and Atelier Beauté Chanel, will face major challenges throughout this crisis. While most stores have reduced hours, the primary challenge is the drastic decline in consumer footfalls. Similar issues will also impact home improvement businesses such as Home Depot and fast food giants such as McDonald’s and Starbucks.
Hubei Lockdown Hits Manufacturing Sector
With the shutdown in China’s Hubei province, the global automotive industry has been hit particularly hard. The region accounts for nearly 10% of the overall Chinese automobile production. It is also an essential center for the production of numerous auto components for domestic and foreign manufacturers.
Plant closures have resulted in rapidly diminishing stocks, which will adversely impact production capabilities throughout the year. Factory shut downs are also causing substantial disruptions in product launches for the high-tech manufacturing sector, impacting supplies of consumer electronics such as smart phones.
Services Sector to be Hit Hard
Globally, non-essential services, such as hospitality, tourism, and entertainment have been severely restricted as businesses including restaurants, transport service providers, airlines, hoteliers, and tour operators, suffer from travel restrictions being imposed by governments around the world. Following such collapses in the sector, analysts are predicting high cautiousness in business sentiment and a substantial likelihood of job cuts.
Some Win While Others Lose
As is the case with most crisis situations, some businesses have managed to come out on top, during the outbreak. While the commercial airlines industry has suffered a massive blow, the private business jet sector has managed to draw an uptick in demand, driven by the movement of top executives, who seek to keep their businesses afloat.
Similarly, the online retailing sector has been gaining attention, as consumers become more open to purchasing goods and services online, rather than physically visiting stores and dealerships. With innovations in contactless delivery services, food delivery services are also gaining traction around the globe.
Further, the healthcare industry is on the verge of disruption owing to issues in supply chains. However, the demand for nose masks, Surgical Respirator Masks, sanitizers, and disinfection equipment has soared.
Governments Send Aid as Investments Dry up
Globally, legislators have been working towards setting up a number of rescue and economy stimulus plans, aimed particularly towards small and medium scale businesses, to minimize the fallout on businesses from the outbreak.
Fintech companies might play a key role in the distribution of such government aid, with greater efficiency as compared to traditional banks. However, as of now, such endeavors will have to face a number of regulatory challenges. Such changes to regulations will become increasingly important, as cash inflows from conventional investment sources slow down to a trickle, over the market uncertainty.
According to a survey conducted on CFOs, businesses are expected to take up to 6 months to regain normalcy, with a large portion of the global workforce being forced to stay home. Businesses across the globe must prioritize safeguarding their business with proactive strategies including diversification of supply chains and cautious spending. As the fallout from the coronavirus continues to unfold, businesses must seek to be prepared, but also hold out some hope.
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