COVID-19 and enterprises: how to survive a pandemic

The coronavirus is forcing marketers to reassess their budgets and their tone, but it will also have a significant and long-lasting impact on supply chains. Bobby Huen looks at what that might mean for global brands. 

COVID-19, the disease caused by the novel coronavirus, has caused one of the greatest disruptions of society in modern times. Thousands of victims have succumbed to the virus, millions more are currently quarantined as the international community scrambles to contain its spread and minimize its casualties. Meanwhile, COVID-19 has also thrown a wrench in the perpetual machine that is the global economy, leaving businesses shuttered and casting an ominous shadow on any recovery in the future. In the face of this international crisis, businesses must consider the severe and long-lasting impact this disease may have on their supply chains, both in terms of labor resource and manufacturing logistics.

Labor supply issues and lessons from history

Diseases and pandemics have been part of human history since the dawn of civilization, and their spread has always been associated with human travel and trade. In the Middle Ages, the Black Death spread from Asia to Europe via the Silk Road and killed approximately a third of Europe's population. The resulting depletion of the labor pool led to a rise in labor costs, and eventually to the liberation of the serfs in parts of the world and ushered in the prototype of modern economic principles.

While the human toll of COVID-19 will likely not be as drastic as pandemics past, its impact on supply chains might be more profound. For one, the hyper-specialization of modern manufacturing means that we often source a specific good from one location (e.g. electronic components and assembly from China), and disruption in one country can devastate a global supply chain.

Moreover, while modern technology has blessed us with ways to communicate around the globe and allows us to automate some parts of the manufacturing process, most aspects of the global economic machine are still primarily run by human labor. They are our farmers and our butchers, our shopkeepers and our entertainers, and their labor cannot be replaced by robots. Some of us might be able to work from home thanks to the internet, but human labor will always be a part of the equation, from the IT worker who repairs the servers to the Amazon warehouse employee who packs your office supplies. These workers, who are at the very bottom of the economic totem pole, are among those who earn the least and yet carry the highest risk in the age of facemasks and social distancing.

This stark inequality in the face of a pandemic might have far-reaching socio-economic consequences as business resumes activity after the crisis.

● Could it trigger a rise in cost due to increased risk to workers and a diminished labor pool?

● Could it accelerate AI and robotic technology development to supplant human links in the supply chain? If so, how would companies balance the inevitable economic downturn and the need for development capital?

● Could there be a wholescale transformation of parts of the economy that are reliant on cheap human labor?

These are the questions that may be answered in the near future.

The future of globalization in the pandemic age

Going hand in hand with labor in the supply chain is infrastructure. From component production to final distribution of goods in warehouses and stores, today's companies are highly reliant on a globalized manufacture and distribution network. Therefore, it should come as no surprise that a global crisis such as COVID-19 would severely impact the entire process. With the labor force having to self-quarantine, factories and assembly plants are lying idle; a hyper-specialized manufacturing process, where a specific component is often manufactured by one facility, means that companies have no other place to turn to when one node of the supply chain is shut down due to the virus.

The resulting paralysis of the entire supply chain has led to devastating results, but there are no quick solutions to the issue. Firstly, manufacturing facilities take years of planning and massive monetary and material resources to establish, not to mention factors such as local labor costs, worker protection regulations, and environmental mandates. For example, it would be impossible for an electronics manufacturer to establish a facility to assemble smartphones on the other side of the world to replenish its inventory in a short timeframe. Companies that manufacture raw materials are also geographically bound by the location of the resource, such as mining or farming. Moreover, while some manufacturing sectors might theoretically be able to diversify their supply chains in the future to mitigate disruption, the upcoming economic crash would likely severely limit their access to capital necessary to do so. Therefore, even if supply chain diversity is a viable solution, it would not be a reality for many manufacturers in the near future.

On the other hand, even before COVID-19 exposed the weakness of a globalized supply chain, a wave of resistance against further global integration has been growing. In the face of lost jobs, a growing wealth gap, international political gamesmanship, and the rise of right-wing populism, multinational firms have been coming under increasing pressure to reverse the trend of supply chain consolidation. And as normally open borders begin to close in order to contain the pandemic, the globalized supply chain model suddenly seems less desirable than one that is regional or localized, where the supply chain can continue to function in some limited capacity if one region of the globe is affected by a future COVID-like crisis. However, in terms of administration and executive functions, thanks to the power of global communication and the ability of remote working, the global trend of mergers and capital consolidation will likely remain unchanged. In fact, there are many reasons to believe that office-based corporate functions would continue to consolidate.

In sum, external socio-political pressure could mount for diversification of the currently globalized supply chain, and firms might invest in national or regional supply chain solutions as contingency measures. However, this process would take time and it might be cost-prohibitive to some companies, and future capital consolidation to facilitate capital investments necessary to overhaul the current supply chain models could lead to a less competitive business environment.

Implications for global brands

The COVID-19 crisis has illustrated some of the structural weaknesses that are inherent in the reliance on a globalized supply chain, and this is a particularly troublesome development for global brands. From labor supply to component availability, brands will likely suffer disruption in all or parts of their manufacturing, distribution and even sales network. Facing an inventory shortage and an economic downturn, brands have to make difficult advertising and marketing decisions.

They can continue to create brand-building campaigns to retain consumer awareness, but that consumes precious capital in the short term. On the other hand, brands can cut back advertising to preserve capital and prevent a run on limited inventory, but at the expense of consumer awareness. To cope with the economic crash ahead, brands and their corporate owners have to decide how to balance between promotion and self-preservation.

At the time of writing, the COVID-19 crisis has shown no signs of subsiding, and the global community is still grappling with daily changes to the facts on the ground and new challenges at every turn of events. However, one thing is certain: we will emerge from this crisis into a changing world.

We will debate how the pandemic has impacted the supply chains of a globalized economy, and we will contemplate the future of industries that rely heavily on human interaction in labor. We might end up with a more isolated society, a place where working from home and online marketing will be more common, and the line between the real world and virtual one becomes more blurred than ever. From disruptions to production systems to the uncertain impact on the global labor force, COVID-19 will leave an indelible mark on the 21st century.