Coronavirus- The Impact & Possibilities for the Business Sectors
Economic Collapse in 2020- This time is deterring for the economy, with the shutdown of the world, the financial market has dropped by roughly 20%, and we are on the worst economic trajectory in history.
Now, what is the meaning of “Financial Market” in this case?
Financial Market refers to a market, where financial assets are created and traded such as shares, debentures, bonds, derivatives, currencies, etc. It plays a vital role in allocating limited resources in the country’s economy. You can read more about the term “Financial market”. In any case, reach out to me if you don’t understand any further.
So how did we land at “dropping of markets by 20%”…and what could we expect in the near future?
Most of you know that there is a global illness around which has caused panic
amongst the People, Government and Globe- CORONA-VIRUS, commonly
known as Novel COVID-19.
Now let’s study in detail what “Coronavirus” is.
Coronavirus (CoV) is a large family of viruses that cause diseases. It ranges
from the common cold to more severe diseases like Middle East Respiratory
Syndrome (MERS-CoV) and Severe Acute Respiratory Syndrome (SARS-CoV). This disease is bad news for everyone around the globe especially for elderly people and those with underlying health complications. It’s good to take precautions at a community level like keeping social distancing and getting quarantined.
The crux of the problem is Community and human to human transmissions. The Government in China has been placing tight controls on the movement of people and goods domestically as well as Internationally. Another problem is when to open up international travel while the rest of the world is seeing cases grow as new cases could trigger another wave. Governments are hence expected to remain cautious and maintain tight controls on movement. For countries like India which are seeing cases grow now, companies can possibly expect the recovery to take a longer time.
Why is this problem for the Indian economy and businesses?
China is the global supply chain of the World where nearly 1/3rd of all the
products in the world are produced by China alone. When China experienced a drastic shutdown and subsequent delays in production, the entire world economy experienced staggering delays as well.
India, one of the developing Nations that is majorly dependent on China for most of the supply of goods, experienced a breakdown mostly amongst small and medium enterprises (SMEs).
Most of the founders in India are beginning to think about the impact that Coronavirus has on their lives and businesses in India. The PM’s address to the nation about Janata Curfews and a complete lockdown was a much-needed step to tackle this situation. We at Stride-Ahead support these measures by The government wholeheartedly and strongly encourages everyone to stay safe and healthy.
Sales and revenue slackening can be seen among large companies as well because of this supply chain fall off. And this makes sense, because if you don’t have any product to sell, then you can’t generate any revenue.
Here’s an example: The automobile industry from 1 to 3 months is facing delays because of the shutdown of all manufacturing units. The automobile industry is highly dependent on tools and machinery in order to manufacture their vehicles. The entire supply chain is at a halt. This leads to the missing launch deadlines of vehicles, therefore losing billions of revenue and sales.
Additionally, people are not willing to purchase new products as they are afraid of the rapid spread of the virus through direct contact with any external commodity.
This problem is the same for every other industry as well. This transferable effect keeps trickling down. If the automobile industry is seeing a drop in sales and revenue, then the suppliers see a drop in revenue, so will the other industries that are dependent on each other. And this is pervasive to all other companies as well.
Now, what happens when a company sees a drop in sales or revenue?
Well, we have heard the terms like “layoffs” and “bankruptcies”. Let us just
say that such a situation has been realized.
The GDP of China will decelerate by 1–1.25 percentage points over 2020 because of the tremendous loss of production. Now we can see how different countries are taking precautions to lock down all the cities to avoid the spread to Novel COVID-19. The Coronavirus outbreak has impacted most of the world economy in some way or the other. Therefore, it is estimated that the global GDP will suffer an impact of around — 0.5%. To know more about GDP, check this link https://kids.britannica.com/students/article/gross-domestic-product-GDP/627635.
While talking about the “Trade” aspect, China is the world’s largest exporter and second-largest importer. It accounts for 13% of the world’s exports and 11% of the world’s imports. (https://hubpages.com/education/Learn-About-Imports-and-Exports-for-Kids)
We can say that due to the outbreak of coronavirus in China, the dependence on China for imports will have a significant impact on Indian Businesses.
This crisis will have serious implications for small businesses in India that need to raise capital to fund losses given all the uncertainty, restrictions on travel and movement, no business meetings, etc. Let us have a look at the sectors that are negatively impacted due to Coronavirus:
Chemical Industry: Chemical plants have been closed down in China.
There will be limitations on shipping. It was discovered that 20% of the
production has been affected because of the disturbance in raw material
supply, for instance, China is a significant provider of Indigo which is a
requirement for the production of denim.
Grocery and Food: Everyone is eating at home during the lockdown and there is a demand spike. However, there is also a supply-side disruption as well with many part-time delivery agents returning to their hometown during
this shutdown to stay with their families. Door to door deliveries has also stopped.
Textile Industry: Due to coronavirus, a few clothing/material plants in China have stopped their operations thus influencing the import of fabrics to India.
Trades: In terms of imports, the dependency of the Indian market on China is large. India’s total electronic imports account for 45% of China. Almost one-third of machines and around two-fifths of organic chemicals that India purchases come from China. For automotive parts and fertilizers, India’s share in China’s exports is more than 25%. Around 65 to 70% of pharmaceutical ingredients sold actively in India comes from China. Almost 90% of mobile phones sold in India are made in China.
While talking about exports, China is India’s third-largest export
partner. The impact may result in the following sectors namely organic
chemicals, fish products, plastics, ores, cotton, etc.
The Tourism Industry: Due to the episode of coronavirus, the inflow of tourists from China and from other East Asian locales to India, will be lost, which will affect the travel industry income. These sectors have seen a big impact because of the restrictions placed on movement around the World.
Electronic Industry: The Indian electronics market is heavily dependent on supply from China, so the prices of items like Televisions, Washing machines, Air Conditioners, Refrigerators, and more, are going up as the manufacturers are able to produce at high prices in China. Indian manufacturers use 75% of raw material supplies and around 85% of Smartphone components from China.
Other industries: Indian brands that utilize raw materials from China have complained that there’s a lack of commitment from Chinese vendors on
when the materials will be delivered as their stock buffer is getting exhausted.
The outbreak of COVID-19 affected the entire world and the impact can be felt
across numerous different ventures. The world’s second-biggest economy, China, came to a halt. It was announced as a National crisis by the World Health Organization.
What is the reason that a significant number of countries are dependent on China for imports?
It is because China is rich in resources. China being a resource-abundant country produces different goods at a lower rate. Chinese products are affordable to consumers in developing and less developing Nations as consumers are price-sensitive.
Recent situations in China have led to an increase in the prices of certain commodities. Due to this, the manufacturers from certain industries, having no alternative supply chain have hampered their business. These segments of
industries have appealed to the Government’s help by reducing the import duties and implementing other possible and corrective measures.
But is this a real solution?
How will our country survive in the long run if we remain this much dependent on any other Nation?
According to Stride-Ahead’s Survey, there are still certain sectors that will
grow due to this outbreak.
E-commerce: Discretionary spending has fallen significantly and categories like beauty and fashion have been affected. Customers who are
ordering are looking for a guaranteed delivery slot from e-commerce companies. Those that have tighter control over their delivery fleet and can
guarantee a time slot are growing their market share. Those that don’t (e.g.
Taobao) have seen an impact on customer experience and lost market share
given shifting consumer preferences around delivery.
Online Brands: Newer online brands have been able to take advantage
because traditional brands do not have the digital marketing know-how that
is required to grow as more consumers shop online.
Online education: Online education is growing really very fast and the
disease is leading to many new customers entering the market. Most users
are however experiencing online for the first time and haven’t begun signing
up for longer-term packages as yet. But the future is definitely Online
Education.
Productivity SaaS: Software as a Service, where business networks can
run and improve productivity leading to better compatibility, accessibility
and operations management. For eg: Platforms like Slack, Zoom, Asana,
Trello, Facebook for business, etc.
Over the Top (OTT): An over the Top (OTT) media service is a streaming
media service offered directly to viewers via the Internet. OTT bypass cable,
broadcast. And satellite television platform. For eg: Netflix, amazon prime,
VOOT etc that provides subscription-based content to viewers like the latest
movies, web series, etc.
Dating apps, Edtech, Stockbroking
Online Consumer Engagement App
Remote Conferencing Services
Music, Media, Video conferencing, data storing and sharing
Video streaming, mobile gaming, and other digital services are
seeing a significant spike but people are signing up only for 2–3 months.
Online entertainment: Apps like Saavn, Spotify, Youtube Videos
Our learning from this situation
What we learn from this crisis is that the current scenario of “Globalization” is desirable for all economies in the world but to a limited extent. The contagion effect of any crisis amongst the Nation whom we are dependent on destroys our economy on a larger scale. It gives us the learning that utilizing our own resources, building our own capability and making this initiative of “Make in India” a priority is the best way to tackle situations like these in the future.
At present, we should wait and see how things will go in the future. We can still save our economy by taking the initiative by PM Narendra Modi seriously. We should not leave the safety of our homes unless there is an emergency.
To summarize, this is a tough situation for the entire ecosystem. However, we are all in this together. Hopefully, all the efforts by the government and citizens bear fruit and we won’t have a large-scale outbreak of COVID-19 in the country. Or those scientists find a cure or vaccine soon that can save lives. Till then, let’s plan for the worst; take appropriate steps as more data becomes available even as we hope for the best.
The team at STRIDE-AHEAD remains optimistic long term and believes in the
resilience of the ecosystem and Indian founders, and we’re trying to make sure we keep making long term investments. Stay healthy and safe!
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By: Priyanka Gupta (Assistant Professor @ GGSIPU)
