The Economist April 11th 2020 pp13-15 Briefing Covid and the company. “Sinking, swimming and surfing” “The pandemic and the damage done will accelerate trends that were already reshaping business”
Relatively few enterprises have benefited from the COVID-19 pandemic but seismic shifts were seen for example in online grocery shopping, food delivery, video conferencing and remote messaging etc.
How do businesses put the COVID-19 crisis in context?
1) Not our fault!
2) We were booming prior to this!
3) Will the recovery be V or U shaped?
What businesses are most impacted?
Most impacted are wholesale/retail (~18% of global workforce), manufacturing (~18%) and moderately impacted construction (~9%). Global stock performance by sector (January 1-April 3, % Change in $ Terms, Median): best to worse Healthcare -10%, Consumer Staples -16%, Technology -17%, Utilities -18%, Communications -22%, Industrials -22%, Materials -24%, Financials -28%, Consumer Discretionary -30% and Energy -40%. Looking at individual companies the span from lowest to highest quartile is large being as much as 30-50%.
Checks are in the mail!
Government bailouts will help but many smaller retail businesses will suffer and some will fail. About half of “non-sole-proprietor [American] firms with fewer than 500 employees were either closed or expect to close in coming weeks”. Many see “the only engine of consumption for the next 12 to 24 months will be government”.
The three trends.
1) Continue movement away from globalization
2) Increased adoption of data-enabled services
3) “Consolidation of economic power into the hands of giant corporations”
Glass-Half-Full see new possibilities while Glass-Half-Empty see “inefficiencies and insularity weighing on profitability for many years to come”.
What will a recovery look like, lessons emerging from China?
After eleven weeks, “China’s recovery shows distinct signs of recovery” in restaurant activity but transportation is still subdued. Some see China as using the crisis, which is symbolized in Chinese characters as danger and opportunity, to invest in companies that are beaten down. Similar consolidation will happen worldwide as the strong will find willing sellers in firms struggling with the fallout of COVID-19. Some of these moves will be focused on ensuring the viability of key suppliers. Supply chains will likely diversify with less focus on China for strategic and economic reasons. Countries elsewhere in Asia and in Eastern Europe are coming on par economically as wages have increased in China. “Robotics and other new approaches to manufacturing make the case for moving factories closer…”
What else to successfully rebound?
“Businesses will need to encourage people back to restaurants, bars and boutiques when lock-downs end but fears persist”.
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