It's official: the Coronavirus has hit global supply chains. This means that the risk it is posing to companies is even more profound than initially expected. It is certain at this point that on a global level, supply chains will experience disruption and that companies need to manage the ripple effect by knowing their supply risk. Otherwise the fallout resulting from all this business disruption could seriously affect global growth.
From delaying James Bond and cosmetics fairs to halting Tom Cruises' Mission: Impossible 7 filming as the actor has been forced to hole up in a hotel in Venice- which sounds impossible indeed. Even the Duomo Cathedral in Milan is closed to tourists as Italy confirmed its sixth death from the virus. The event industry has been severely hit and who knows how long will it take to recover. Even London's and Paris' book fairs got cancelled.
As if the automotive industry isn't already depressed enough, Coronavirus has now cancelled the Geneva International Motor Show. Even before the organisers decided to cancel, a number of brands, including Volvo (OTC:VOLF), Jaguar, Ford Motor Company (NYSE: F) and Peugeot (OTC: PUGOY) had announced that they'd be no-shows. Such a shame considering several model premieres were scheduled to be revealed, including the eighth-generation Volkswagen (OTC: VWAGY) GTI, the BMW (OTC: BMWYY) Concept i4 and the new Mercedes-Benz E class.
The challenge is also significant in the high-tech industry. Indeed, on February 17, Apple Inc (NASDAQ: AAPL) downgraded its expected quarterly earnings. The company refers to two challenges: a constrained global supply of iPhones and significant drop in demand in Chinese markets. On a brighter note, social media has been less hit due to their operations being practically absent from China, but Facebook (NASDAQ: FB) still had to limit travels of its employees and cancel its Global Marketing Summit. Google Inc (NASDAQ: GOOGL), however, found a way to turn its Google Cloud Next '20 into an online event.
Even UK retailers are hit with supply disruptions as 24% of British retailers, ranging from food and fashion to health and beauty, stated supply chain disruption was having a significant impact on their business. However, only 7% said they had enough flexibility in their supply chain to be able to switch suppliers.
The economic cost on retail businesses globally will surely be substantial but it might be several months before it's truly felt. Under Armour Inc. (NYSE: UA) has said that their first-quarter revenues could be impacted severely in the amount of $50-60 million. However, there are some lucky retailers who have a diversified supply base and therefore are simply more immune to the effects of this Black Swan event.
For example, fast-fashion operators such as the world's second-biggest fashion retailer H&M and Inditex's Zara have a diverse supply base located in North Africa and Turkey. So, their ability to shift volumes from one supplier to another will at least serve as a good cushion to amortise the disruption in China.
Companies over the world should brace for a major effect on manufacturing worldwide. It will begin to hit full force in two to three weeks and could last for months. The event industry will inevitably suffer a great deal and will significantly have to scale back this year. On the other hand, staycation and lockdowns will surely serve as inspiration to tech companies as they will find new ways to organise online- and provide such value-adding services while we are all forced on a global level to scale back any physical movement and contact.
It seems that what Zuckerberg wished for Facebook to build a community, its own world online, turned into a global reality thanks to the Coronavirus which will force many to find comfort in an online lifestyle. Only time will show what sort of trends are yet to arise from this Black Swan event – and those companies which find ways to support those developments will surely amortise the blows of COVID-19.
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