Covid-19 has an impact on almost everything. With more impacts to follow, the situations remains evolving. Vaccine testings are still in trial phase. Even in expedited mode, we may not have a medicine mass produced within 2020. Winters are going to be long this time.
With lockdowns & circuit brakers across the world, it is a massive business & social experiment. Though a forced one. Leaving social experiment trends to experts, we can focus on business trends that are fast emerging from this experiment. These are our observations and not recommendations, reader’s discretion is advised.
Reduce Human Dependency
Companies will be looking to reduce human dependency post virus subsides. Big multinational companies usually have a list of organizational risks that their management layer has to focus & preempt. It is part of their regular job. With Covid-19, they will be given another task to manage such situations in future and preserve organization’s business interests. Since management can neither predict or preempt next virus outbreak nor can influence vaccine research. They will resort to remove or reduce human dependence as much as possible. This may lead to a wave of automation post things get back to normal. There are technologies on the horizon which can accelerate it. Thing like 5G with advanced robotics can work wonders in new work environment. Companies may be forced to think or invest in these areas. It needs capital expenditure and organizational transformation. Both are never easy hence it was always on the back burner of bigger MNCs. It was mainly the smaller or newer companies using automation right from the start. In today’s time, it is possible for factories to automate routine factory work. Only issue was that with more machinery, comes the problem of maintenance expenditure. Someone has to keep inspecting all machinery on a routine basis to keep them from breaking down. With 5G , this issue can also be resolved as machines can start to report their health status to central maintenance centers. Such concept exist for some factories in USA where factory & maintenance center are run on a “hub & spoke” model. There is one maintenance center handling multiple factory sites. Something unique but repeatable.
Such trends are never good for unskilled workforce as they will be forced out. Therefore, education infrastructure investment in countries like India is paramount. Without it, the unskilled workforce are going to find life harder & harder in future. We all know what happens when people are pushed to a corner. A demographic dividend can become demographic disaster. Talking about job creation, it can be a band-aid not cure. The sheer number of population growth is always going to outrun job creation opportunities for any Government. Hence, populated countries like India, and China need to look at fixing it in a more holistic way.
Covid-19 was a wake up call for countries which are too dependent or either side of global trade, export or import. Lockdowns are forcing nations to become self reliant for their needs and sooner it will be expanded to desires as well. Even mighty USA has been nudging India for medicine supplies. As per estimates, approximately 60% of all generic medicines sold in USA are manufactured in India. Infact, Pharma is the only industrial sector where India is significantly ahead of China. For exporting nations like middle-east, dramatic drop in oil prices are crippling their national budget. All of it is because of globalization which swept through the world for two decades. For example, if India bans facebook in India (like China), suddenly FB’s user base will be halved. Companies will never be shy from selling their products globally but their supply chains may get a domestic boost in future.
This is global trend. More & more countries are getting vocal about the possibility of virus being leaked from Wuhan’s biosafety level-4 lab. Irrespective of this being right or wrong, due to virus related suffering, people by large are developing anti-china sentiments. This can be a huge business risk for Chinese companies as their global clients will start to move out of China either completely or partially. It is almost certain that all companies are going to have two to three suppliers to avoid such supply shocks in future. This means the giant Chinese pie will get redistributed to other manufacturing countries. In contention are nearby countries like Vietnam, Taiwan etc. India is also racing to get some portion of the pie and will eventually get it. However, we think Vietnam will reap maximum benefits because of better infrastructure and ease of doing business. Another thing going for Vietnam is that it has been emerging as an alternate to China even before this event. Still, the Chinese pie is too big to be swallowed by Vietnam alone and specific portions will come to India. Chemical, Pharma, Metal & natural resources being some of them. Countries like Malaysia will pick electronic manufacturing as it already has a big base there. China’s competitors like Japan are even subsiding Japanese companies to move back their operations in Japan. To counter this, China may devalue their currency some more and provide generous credit periods to client companies. There will surely be a fight back from them in pricing front and that will save them from a bigger erosion in exports.
To let our readers know why Chinese companies are so successful in exports & able to penetrate almost any country. It is because of cheaper cost & generous credit lines (usually 4-5 months). For companies which can clear their inventories in 4-5 months time, their working capital requirements is cut down significantly. For some cases, they even supply machines to setup plants and then get them into a contract to take supplies only from them. These are very compelling business preposition for any owner to get tempted to China based supplier. You may be thinking how Chinese companies make a profit or sustain with such practices? It is because of a combination of three factors, 1) Access to cheaper and hardworking workforce, 2) Access to generous credit lines from Government Banks, 3) China’s consistent currency devaluation (Yuan vs Dollar). Point number three which is to print yuan helps to achieve point number two. Only thing that has been slowly spoiling this trifacta was rising prosperity levels in China resulting in costlier workforce.
Work From Home
It is not a new idea. It has been there for many year but companies have always been reluctant to experiment with something which was running so well. With Covid-19 forcing them do so, they can see that such arrangements can become a permanent feature in future. TCS has recently announced that they are not going back to older ways of working once it is over. They will have 75-25 ratio. It means employees will work 75% of their time from home while only 25% in office. Similar announcement are made by other IT biggies like Wipro & HCL. This will dent the commercial real estate prospects as IT SEZ hubs will not grow as they have been growing in the past. This will also result in more home based broadband usage and boost e-commerce trades.
Healthcare & Fitness Awareness
Covid-19 has badly exposed under-spending on healthcare system across the globe. Post Covid-19, there will be massive investment into Healthcare Tech. This is a new term. Just like Fintec, there will be an increasing role of technology in healthcare sector. It can be online consultation by doctors possibly across the world. Remote diagnostics where blood sample is taken at home and results are emailed to doctor & patients within 24 hours for follow up consultation. Such trends can see a boost. This can cut down significant pressure on hospitals and a relief for patients as they don’t have to queue up at hospitals. Online medicine delivery is already in place.
Apart from innovations in healthcare, the focus on fitness will generally increase as obesity trends may rise. Traditional ways like Yoga or Meditation can play a huge role in improving overall well-being of people who are mostly working from home. Since many of them working from home will be from IT sector with higher disposable income, they may spend more in fitness appliances which can be easily setup at home.
These are some of the trend & observations. We will be updating our readers on evolving Covid-19 related business situations in future as well.
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