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Is this it? Is COVID-19 the event many business leaders and investors were expecting to end a record-long economic expansion? Is it even worse than expected?
As the fast-spreading new novel coronavirus alters normal life and business patterns near and far, there are more questions than answers about its global impact. Uncertainty, along with COVID-19-related supply chain disruptions and travel restrictions, is a nasty side effect for businesses and markets to manage. What’s not known can be an economic killer.
“That is the question of the century,” said Allen Morrison, professor of global management at Thunderbird School of Global Management at ASU.
The first step is acceptance. In Morrison’s view, we have reached a point of no return on globalization. The world’s economy is inextricably interconnected. Uncertainty — though higher in some periods than others — comes with the territory. Business success will lean on strategies tailored to that norm, Morrison said.
“Strategy, in and of itself, is an attempt to firmly ground the company in some sense of reality, albeit at a point in time,” Morrison said. “So, strategy is a commitment to a current or anticipated state of affairs, and the reality is that state of affairs is changing very rapidly.
“Strategy, by definition, is going to be tenuously linked to and misaligned with a rapidly changing environment. Does that mean we have no place for strategy in today’s world? I think it’s just the nature of people and organizations to want structure, to want stability, to want to be staked to something that’s more secure.”
“Strategy is a commitment to a current or anticipated state of affairs, and the reality is that state of affairs is changing very rapidly.” Click to Tweet
Mary Teagarden, professor of global strategy and editor of the Thunderbird International Business Review, said a time of crisis is as good a time as any for businesses to focus on diversification and other strategies that mitigate disruption. Now is exactly the time to have conversations about preparedness and to provide training and education around risk mitigation. It’s not sexy work but it’s essential, she said.
“This is when you have people’s attention. As a strategist, I don’t hesitate to talk about it (during a crisis), even though it makes people uncomfortable.”
Effectively navigating uncertainty is key to pushing through current challenges posed by COVID-19, but it’s also just good business practice. Both Morrison and Teagarden said strategies like supply chain diversification should be part of the normal course of doing business in a time of globalization.
“Rather than think about this in the stark terms of good or bad, it’s how do we mitigate the risks associated with globalization,” Morrison said. “How do we make sure that, using the metaphor of the coronavirus, that the contagion is contained to a certain geography? So businesses would have the benefit of globalization, global economies of scale, global supply chain, global integration and at the same time be able to decouple. That I think would be the golden elixir of great strategy.”
Currently, there is little solid ground upon which to plant strategies to address the impact of COVID-19. Emotional overreaction and panic behavior flourish within a dearth of critical information about the extent and projected length of the public health emergency.
We know the coronavirus surfaced about two months ago in China, causing the “world’s factory” to close manufacturing plants, impose quarantines and establish other emergency public health measures — essentially locking down 60 million people — to try to contain the contagion. Despite those efforts, COVID-19 has spread to all continents except Antarctica. As of March 6, more than 100,000 cases have been reported worldwide and the disease has caused about 3,400 deaths.
While the Chinese government reports progress in crisis management of COVID-19 and anticipates normal factory operations in late March, the impact of disruption likely will play out for the rest of the year and perhaps beyond. For example, China produces most of the world’s toys. Damage to Christmas season for toy retailers may already be done, as production in Chinese factories typically starts in February and toys ship in April.
In addition to laying bare the risks of global supply chain disruption, travel restrictions in response to COVID-19 have hampered normal business practices and hurt tourism, especially among Chinese consumers.
Apple, which relies heavily on China-based Foxconn to produce iPhones, is an example of the rewards and risks of global supply chain diversification. The corporate behemoth announced last month that its first quarter sales projections would fall short because of production delays.
Global reach can have significant rewards for organizations, but global risk must be managed, Teagarden said, adding she would like more businesses to think harder and smarter about putting all their apples in one basket.
“The numbers look great,” Teagarden said. “When you keep everything with one supplier, you lower your transaction costs, and ‘Ain’t life wonderful.’ But you really have to ask what kind of business risk are you taking on with this strategy.”
“When you keep everything with one supplier, you lower your transaction costs, and ‘Ain’t life wonderful.’ But you really have to ask what kind of business risk are you taking on with this strategy?” Click to tweet
Good information is critical to developing good strategies. Absent helpful, accurate information about COVID-19, global strategists are left with imagining a range of scenarios.
“We don’t know what we’re dealing with right now,” Morrison said. “But the human nature is to go to the worse-case scenario, the boogeyman scenario. What I think is the more pressing question is ‘Is this just another strain of the flu?’ From a market perspective, that’s the question. Is this fundamentally different? There are a lot of professionals who are very concerned about it, and I defer to them. This is perspective I’d like to know as I’m assessing the hype vs. the reality.”
Teagarden said not having good science to help inform decision makers adds to people’s nervousness and unease about the economy.
“We can hope that what happens is the virus dies out when we move toward summer,” Teagarden said. “That’s what happens with typical flu viruses. Or we can think of a mid-range case, that it drags out for about a year. That’s a typical cycle for a virus, and we could see disruption for a year.
“In the worst case, there is a powerful pandemic and we see people dying in relatively large numbers. As I’m fond of saying, there’s no business on a dead planet.”