By Nilesh Gaikwad – Country Manager at EDHEC Business School, France
The world economy has come to a grinding halt ever since nations realized ‘Lockdowns’ are the only way to contain the spread of COVID-19. While governments have directed all efforts to overcome the spread, companies have withdrawn into a huddle. Unlike the past recessions, this ‘Great Lockdown recession’, as IMF puts it; has added a degree of uncertainty to the industry’s ability to bounce back. This uncertainty has posed a major challenge for even the most seasoned professionals to estimate the road ahead. With the onset of summer (read, high temperatures) not causing a major dent in the spread of the virus, all hopes now rest on how swiftly the best minds in the medical world trace out a vaccine against this pandemic.
While all these scenarios play themselves out, the customer psyche is undergoing a sea of changes. Companies must realize their strategies drawn out two months back amount to zilch. In fact, organizations need to prepare themselves for a battle that may last at least two years if not more. Below we discuss the possible incorporation while strategizing for the next few quarters:
A 1945 moment:
The emergence of ambitious yet ‘self-sufficient’ economies was a major takeaway of World War 2! While the Covid19 body count is not as high as the Great War, most developed countries are staring at a never before seen dent in their GDP post-1945. Their health infrastructure seems overstretched, while the resultant policies have attacked the very norms of their culture. However, developing countries seem less affected in comparison. Experts need to find an answer to these questions quickly. At the same time, we shall see a flight of investments from China into such economies that survived the full onslaught of the virus.
Relocating the Supply Chain Model:
While China monopolized the global Supply Chain over the past three decades, nations are now finding alternatives to reassess & relocate these businesses elsewhere. Japan has offered a $2 Billion assistance to its companies to shift production out of China; Germany has joined UK, France & the US in initiating an emotional backlash against China. At the same time, India introduced a change to its FDI norms in order to preempt any hostile takeovers of its businesses! As the situation clears up in the coming months, we shall see more countries reducing their dependence on China.
Lack of Trust:
While suppressing the V-curve remains the primary concern of most governments, one cannot overlook the possibility of the return of the virus through the W-curve! Hence, the governments must orchestrate phasing out of lockdown in a highly controlled environment. In the coming months, the majority of the public would increase spending towards insurance & health-related products, thus cutting down on unnecessary display of wealth. Luxury & related industry may take a hit. Furthering this cause, we may see the return of nationalist fervor or even lack of loyalty in favor of lower pricing options. As businesses are staring down the barrel, it is only natural for the world as a whole to experience a trust deficit. Companies must ensure complete transparency in their operations else they would risk losing their customer base.
Spending on Essential Commodities:
This great ‘spring of hibernation’ has brought the non-essential businesses on their knees, forcing businesses to ask uncomfortable questions about their existence. More importantly, just as with the 2008 crisis, senior management shall experience heavy scrutiny related to their benefits and packages. Companies shall race towards austerity and only those that can pivot themselves to the changed horizon, would survive this onslaught. The key to survival is to be future-ready!
Business Impact:
This lockdown has severely affected the aviation, tourism& event management industries. As of today, most professionals within these industries are bearing ‘leave without pay’. If the situation persists, this could lead to unimaginable job losses or a complete wipe-out of an industry. Wherever possible, customers are moving onto the e-platform. Under these circumstances, businesses in India cannot afford to just survive but rather cater to a growing workforce. India shall face stiff competition from other developing nations. The government must ensure its policies and more importantly, its inertia does not become an impediment in India’s success.
Together, we shall overcome this pandemic just as we have overcome many other challenges. The key is to map accurately the differentiating factor called ‘uncertainty’!