COVID-19 Pandemic Effect on Business
- How Foreign Producers and Consumers Perceptions of China Might Change
COVID-19 pandemic has dramatically impacted foreign consumers’ and producers’ perceptions of China. This is partly because the Chinese government gave the impression that they tried suppressing initial information concerning the novel coronavirus, leading to possibly missing an opportunity to contain it before it became a global problem. Therefore, the censoring of information in social media and news channels by the Chinese government negatively influenced individuals’ perceptions of the country more so suppliers and consumers.
Consumers’ opinions about products with Chinese origin have been adversely affected (Devlin et al., 2020). Some consumers do not want anything to do with products connected to China, and this was evident when in the technology industry, Indian consumers of Chinese applications backlash against the use of these applications on their mobiles. Due to COVID-19, tourists who might come to China have decreased due to the fear of contracting the disease. Consumers of food-related products are highly concerned about the safety of food originating from China. Producers are also wary of their dependence on Chinese markets and their raw materials after the fall in China’s economy, which has resulted in low markets, production and export of raw materials, which has emphasized decoupling from China.
- How Asian and Other Suppliers to Chinese Assemblers and Manufacturers Might Change Their Strategies
The COVID-19 has resulted in the slowing down of the economy globally and not only in China. Over the years, China has become a central manufacturing hub for numerous global business operations. Due to the COVID-19 pandemic, temporary manufacturing deserts have been created whereby a region, nation, and zone’s output drops so considerably that they become a no go zone to the outsourcing of raw material products apart from those used in essential commodities such as food and medical supplies. A disruption in China’s output will have an impact elsewhere through the global value chains. Instead of relying on these Chinese firms to be a source of the market, suppliers may result in looking for new markets in other regions around the globe. These suppliers may alternatively seek alternative markets in the Chinese market instead of looking for new markets altogether in a new geographic location.
- Whether GVCs will change and how, for Example, Will It Prompt Reshoring, Nearshoring, or a China+1 Strategy
The global value chain will change as one of the impacts of COVID-19. The global value chain will be more diversified than before. Instead of businesses and manufacturers relying on a few suppliers and geographic locations, they will now depend on a more comprehensive web of suppliers. Companies, especially those that rely on China for their business supplies, will shift their strategies to accommodate other suppliers from other regions, thus adopting China plus one strategy (Govindarajan, and Bagla, 2020). This will result in the global supply chains being more complex and business experiencing higher costs. However, it will result in more resilience for businesses and supply chains. Companies will also result in reshoring due to the movement restrictions and lockdown, which affect the transportation of goods. Companies that outsource their products will lead to seeking alternative supply chains in their countries as goods outsourced are stranded at ports as transportation schedules are being rescheduled or canceled.
The backlash against globalization as a result of COVID-19 will significantly affect the global value chains. This will expose the vulnerabilities of the global supply chain and thus a need to restructure the GVS’s with an in-built redundancy and resilience though at the expense of efficiency. Manufacturing will be brought closer to home, and the trend towards re-localization and regionalization will be boosted. Agricultural supply chain, which has resulted in shortages, will lead to the rise of local supply chains that are more resilient. Labor mobility has reduced dramatically since the beginning of the global COVID 19 pandemic due to governments’ restrictions on travel. The sensitization and lockdowns of movement reduce people’s flow but even so a different concept of labor mobility. When individuals cannot relocate for work, they will have to relocate for individuals. For those companies that their work cannot be performed remotely, then the company will have to relocate to global remote workforces.
- How will the pandemic impact factory Asia?
Factory Asia, for almost a decade, has been depended upon by international commerce. The COVID-19 pandemic will negatively affect Factory Asia for the short term. Purchasing Manager’s Index, has confirmed that there has been a decline in manufacturing in Asian Factories generally. Although production has slightly increased in China in the rest of the Asian countries, it has significantly decreased. Due to a decline in demand for a majority of the sectors, production is being slowed or completely shut down. The economic impact of COVID-19 is resulting in degeneration in the spending habits and consumption of consumers. The decline is as a result of consumers’ loss or reduction in their income level, social distancing, and their fear of spending money in a period that economic recession may occur.
Buyers of products from Asian factories are cancelling their buying orders or significantly reduce their quantity of purchases. Raw materials are being disposed of by manufacturing companies due to their excessiveness and running to waste. The factory Asia will also experience a shortage in their labour supply as a result of the travel restrictions put in place by governments. A majority of Asian Factories rely on labour from immigrants, and this may result in them lacking employment because some immigrants are returning to their home countries. Employees may also be in the region but unavailable due to them being unwell or fear of contracting the disease. They may also be taking care of their families, especially those who are sick and this will majorly apply to women labourers who usually have domestic responsibilities on their shoulders. Also, to avoid the further spread of the virus, the companies will have to reduce their labour supply. The governments in Asian countries such as China, India, and Bangladesh imposed mandatory temporary lockdowns to curb the spread of the virus, thus resulting in the closure of the manufacturing business.
In Vietnam, for example, garment manufacturers are experiencing losses due to their shortage in supply of raw materials, especially those coming from China. Western buyers to their products have also stated cancelling and suspending orders. As a result, the factories have resulted in reducing or doing away with shifts and overtime for their workers. The same is being experienced in Asian countries manufacturing garments.
- How might Chinese firms react, will they seek to reduce dependence on overseas markets, will they move towards services which might be traded more easily, will they automate production processes to replace labour?
Chinese firms may react towards the global COVID-19 pandemic by shifting their business models. For some companies, their reaction will be characterized by the digitalization of their services. Businesses more so those that provide services offline like education, entertainment, and retail may shift online. China companies may automate their production process to reduce the amount of human intervention and labour necessary for production to go on. New business models are emerging as a consequence of COVID-19, especially in sectors of health, logistics, and automation. A majority of consumers are spending on essential products, and this may lead to businesses shifting their business models to remain in business.
- What policies might the Chinese authorities implement to reduce the damage to their economy and reputation?
To reduce the impacts of COVID-19 to both the economy and reputation of their nation, the Chinese authorities may take immediate measures to curb the spread of the virus while supporting health facilities to treat those infected. The government can do this by providing subsidies to medical equipment used for testing and treating the disease. To help health facilities cope with the extra burden of patients, the Chinese administration may give financial support for public intervention to facilitate the expansion of health care facilities (McKenzie, 2020).
A majority of individuals in China are experiencing a shortage in their income supply due to loss of employment or reduction in their income. The government may take measures to increase the financial security of these individuals and reduce the shock of employment loss by directly supporting the employees and their households. These can be done by providing emergency medical and employment insurance to those not covered. They may also offer cash directly for household consumptions to individuals living in the country (McKenzie, 2020). To promote businesses and aid in the economic comeback, the administration in China can provide financial support to employers to ensure that their job is retaining employees. This may be done by imposing tax exemptions and fiscal subsidies to the most affected business sector. Companies directly involved in the fight against COVID-19 may be given easy access to credit.
- How might foreign governments react to these events, will there be more state intervention in international business, more protectionism?
Foreign governments may react to the impact of COVID-19 by highly intervening in international trade. The governments may do this by restricting Direct Foreign Investments being carried out in their country, especially by countries that have already developed (Madan, 2020). This is to reduce the amount of competition from foreign firms to local industries. The restrictions on Foreign Direct Investment may help to protect the industries in their nations struggling from the impacts of the pandemic. The foreign governments may impose high taxation on non-essential goods to reduce importation into the country. Tax relief may be imposed on goods that are essential and directly involved in the fight against the pandemic. Governments may also intervene by banning of export of health-related products together with agricultural products. This may be done by a government to reduce a shortage in the essential commodities.
- How might the efficiency imperative that drives globalization change to incorporate greater resilience?
The global COVID 19 pandemic has brought about changes that seemed unthinkable just a few months ago. Markets will have to remain open and predictable and foster a favourable environment for trade to incorporate greater resilience. Interconnections bring to the globe more considerable advantages which can be a source of resilience when appropriately aligned (Huiyao, 2020). The internet, which allows for the exchange of information and is critical for the survival of nations, can be used to improve resilience. Innovation can facilitate the crisis-proof for globalization.
Technologies, for example, big data and smart manufacturing can allow for industries to identify risks early and adapt supply chain networks and work arrangements that would go on in times of disruptions by a crisis. This will let for globalization to go on as nations and organizations will have clear and updated information that will allow them to open conversation on how to curtail, manage, or eliminate the risks. No single nation can build resilience on globalization, but instead, countries and industries around the world need to put in the efforts. The local, national, and international levels of administration need to think and reform their perceptions on reward, risk, and uncertainty. They all need to shift their perceptions of viewing disasters as unusual to that of recognizing them as inevitable (Huiyao, 2020).
A majority of the countries have resulted in the banning of exports for essential products to hoard their local supplies, and this sets off chain reactions and intensifies shortages. To create more resilient after COVID 19, the World Trade Organization can re-tool and restructure to facilitate the smooth flowing of trade both in times of normalcy and in times of crisis. Tariff exemptions for crucial supplies may also be coordinated and agreed upon by nations to allow for resilient in times of crisis in the future.
References
Huiyao, W. (April 17, 2020). COVID-19 is a call for resilient globalization. CGTN. https://news.cgtn.com/news/2020-04-17/COVID-19-is-a-call-for-a-resilient-globalization–PJMxaGRpIY/index.html
Devlin, K. Silver, L. And Huang, C. (April 21, 2020). U.S. Views of China Increasingly Negative Amid Coronavirus Outbreak. Pew Research Center. https://www.pewresearch.org/global/2020/04/21/u-s-views-of-china-increasingly-negative-amid-coronavirus-outbreak/
Madan, T. (April 26, 2020). How Is the Coronavirus Outbreak Affecting China’s Relations with Its Asian Neighbors? A ChinaFile Conversation. https://www.chinafile.com/conversation/how-coronavirus-outbreak-affecting-chinas-relations-its-asian-neighbors
Govindarajan, V. and Bagla, G. (May 25, 2020). As Covid-19 Disrupts Global Supply Chains, Will Companies Turn to India? Harvard Business Review. https://hbr.org/2020/05/as-covid-19-disrupts-global-supply-chains-will-companies-turn-to-india
McKenzie, B. (June 19, 2020).COVID-19 Government Intervention Schemes. https://www.bakermckenzie.com/-/media/files/insight/publications/2020/06/gis-19-june.pdf