The ongoing spread of the deadly Covid-19 has become one of the biggest challenges to business worldwide, including our coveted financial markets. According to World Health Organization, the virus that was first detected in the Chinese city of Wuhan last December has infected more than 110, 000 people in at least 110 countries and is expected to increase with time. More than 80, 000 cases have been reported in China so far. Italy remains the most affected country as the death rate has surpassed China. The disease has now spread around the world with countries like Iran, the USA, South Korea, France, Germany, Spain and India affected severely.
In order to contain the Covid-19 pandemic, countries like China, Italy, Spain, Russia, India have locked down cities, restricted movements of millions and suspended business operations. Moreover, travel bans, cancellation of sports events, the prohibition of mass gatherings, deserted shopping malls and freefall of the stock market have shaken the worldwide economy, affecting many businesses worldwide.
According to the latest information from Organisation for Economic Cooperation and Development, China’s gross domestic product growth saw the largest downfall. The Caixin/Markit Manufacturing Purchasing Managers’ Index — a survey of private companies revealed that China’s factory activities recorded a low reading of 40.3 and a reading below 50 indicates contraction. Such a slowdown in Chinese manufacturing has hurt countries that have close economic ties with China such as Vietnam, Singapore and South Korea. Moreover, China is not only the country that has witnessed the weakening of the service sector. The service sector in the U.S., the world’s largest consumer market, also contracted in February, the lowest in the last 10 years.
In the case of supply chain market, Airbus has halted its production line in Tianjin as travel restrictions imposed by Beijing take their toll. The plant builds about six A320 aircrafts every month and therefore its closure will negatively affect the manufacturer’s jet output. Other manufacturers that have stopped its production in China are Toyota, General Motors and Volkswagen.
The South Korean carmaker, Hyundai has shunned the production lines with China due to the disruption to the supply chain of parts that usually flow between the two countries. The Japanese economy minister, Yasutoshi Nishimura, said factory production and company profits could bring the business in doldrums due to the pandemic. Honda has three plants in Wuhan, the city at the centre of the epidemic. GSK, which is one of Britain’s largest drug makers took an initiative to close down the medicine packaging facility in Tianjin, which employs about 100 people. It remained closed after the extended lunar new year holiday. The company has 3,000 employees across China, many of whom are working from home.
36Nike and H&M have shut half of their stores, thereby witnessing at a whopping loss. Disney remarked that its operating income could take a hit of $280m (£216m) after it was forced to close two theme parks that are usually busy over the lunar new year period. Ikea has closed all of its 30 stores in China, whereas McDonalds and Starbucks have shut half of their units.
Tourism sector is witnessing the biggest loss in the decade. The number of Chinese tourists has seen a sharp increase in recent years, rising from only 10.5 million in 2000 to 150 million in 2018. This means tourism is likely to be one of the worst-affected industries worldwide, as cross-border travel has been halted to control the spread of the virus. The coronavirus outbreak is bad news for nearby destinations such as Japan, where Chinese visitors account for 40% of the tourist spend and cruise ships have been anchored offshore after passengers tested positive. Popular tourist destinations such as Bali and Thailand are facing the worst crisis. Added to this, the London-listed InterContinental Hotels, which has 443 outlets in China, has waived cancellation fees for a period, adding to the impact from a drop-off in domestic and inbound travel.
In India, according to the reports of the Federation of Indian Chambers of Commerce and Industry (FICCI), over 50 percent of Indian companies have already seen an impact on their operations and nearly 80 percent have witnessed the decline in cash flows. The report further stated, “Besides the direct impact on demand and supply of goods and services, businesses are also facing reduced cash flows due to slowing economic activity, which in turn is having an impact on all payments including to those for employees, interest, loan repayments, and taxes.”
Beyond the concerns associated with business operational continuity, employee protection, and market preservation, it is important for businesses to come out with an effective plan for the long run. However, once the COVID-19 is contained, much of the world is likely to return to complacency and remain under-prepared for the inevitable next outbreak. Therefore, it is essential for businesses to invest in strategic, operational and financial resilience to emerging global risks that will help them to be in a better position to respond and recover.
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