Siah Hwee Ang sees major disruption to some industries due to COVID-19 causing businesses to question some of their old ways of operating

Siah Hwee Ang sees major disruption to some industries due to COVID-19 causing businesses to question some of their old ways of operating

By Siah Hwee Ang*

The COVID-19 crisis is of a different nature to the 2008 Global Financial Crisis. Unlike the GFC, COVID-19 is forcing countries to engage in a balancing act between public health and economics.

The number of COVID-19 cases across the globe rose exponentially as countries started rigorous testing. The total number reached more than 2 million a few days ago, with a death toll of about 160,000.

While in some countries the numbers have tapered off, they have continued to rise in others. A third group of countries has seen a decline in cases followed by a significant rise later. My tracking of 25 countries including China, US, Canada and a group of Asian and European countries shows that the number of cases that these countries represent as proportion of global cases has been dropping from 100% on 21 January (when the World Health Organization started its situation report) to 74% on Sunday.

This means that COVID-19 is not going away for the timebeing, at least not in a global sense. We may have to learn to cope and live with it and make the most of it for the next months.

Retail sales data show that most countries are experiencing a significant decline. Retail sales of consumer goods in March fell 15.7% in China and 8.7% in the US. France’s statistics show a drop of 24% and Singapore’s also dipped by 8.9%.

Given the lockdowns, we can expect a rise in e-commerce, with some areas of consumption flourishing and others floundering.

The fastest growing e-commerce product categories include disposable gloves, bread machines, cough medicine, soups, rice and dried grains, and packaged food. The fastest declining product categories include luggage and briefcases, cameras and clothing.

The latest IMF forecast for countries’ GDP growth in 2020 is not promising. Its forecast has major countries in the red zone – US down by 5.9%, Italy 9.1%, France 7.2%, Germany 7.0%, UK 6.5%, Australia 6.7% and Japan 5.2%.

China and India, on the other hand, have been forecast to grow at just over 1% in 2020.

Joining them are six of the 10 ASEAN countries.

The jury is out on how fast these economies will recover. The major disruption to some industries will cause businesses to question some of their old ways of operating. Indeed, we should not expect all industries to go back to their old ways of operating post COVID-19.

Industry structures are also bound to change. We should expect technology to populate more of each industry’s value chain post COVID-19. To what extent business contracts have been unable to be fulfilled during this period is unknown, but likely massive.

We may also observe a loss of business relationships if these are not well managed during this period.

Post COVID-19, countries will increase their diversification in products and services.

With trade slightly delayed during COVID-19 some countries will deem it necessary to produce more of their own essential supplies and goods or risk being stuck in complete limbo. Some of this new production will likely cease after the pandemic, however not all of it.

There is a worldwide shortage of medical supplies at the moment. There seems to be little help from countries with comparative advantage at this time. Countries will find that while trade based on comparative advantage is great, crunch time will require them to be as self-sufficient as possible in some areas. Countries are also starting to become concerned about the downside of a weakened domestic market.

For example, India has changed its rule about foreign direct investment into the country to require that these investments have high level government approval. This is done to avoid cheap purchases that can be made during this time of crisis, especially of companies in industries of strategic importance.

Potential trade relaxation is also there for the taking. Having some slack in stocks in some areas may be useful for a rainy day.

What this means is that we should not expect bilateral trade numbers to follow the old trend from 2021 and beyond. For the timebeing, the balancing act of public health and economics will continue to occupy our attention, but international trade post COVID-19 should not be completely side-lined either.


*Siah Hwee Ang holds the Professorial Chair in Business in Asia and is the Director of the Southeast Asia Centre of Asia-Pacific Excellence at Victoria University of Wellington.

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11 Comments

I suppose the biggest question though is whether we will see a rejection of globalism and an embrace of bringing production back onshore. It seems entirely logical for both employment and strategic reasons.

I totally agree with you it had already started pre covid witness trump's policies this will only accelerate if globalisation and free trade deals do come under closer scrutiny in regard to countries assessing their vulnerabilities in supply lines in regard to sensitive technologies and food . Also international corporations will have the cold eye of taxation authorities looking to raise revenue in light of strains on traditional sources. Politically nationalistic trends will also gain traction again due to supply line frailty in times of international stress .

On a very local note, I just went supermarket shopping. People in close proximity, touching things, picking over veg. If Covid isn’t spreading In that environment, why can’t we ease up in other retail sectors? As the author of this article says, we have got to learn to live with Covid. 90% of fatalities in the UK are over 60, probably more when nursing home deaths are added. Then factor in co morbidities. This seems to be the pattern worldwide. Why not simply protect or isolate vulnerable people, in dignity and with financial help?

If Covid isn’t spreading In that environment, why can’t we ease up in other retail sectors?

Because this would dramatically increase the amount of venues for community transmission. And it only takes a small amount of community transmission to increase exponentially.

Dramatically increasing what Dr Bloomfield says essentially seems to be zero, will give an exponential increase to ... zero.

And what has been happening in Australia? Are they doing better or worse than NZ? Or actually just the same....but with more liberal rules. Under your assumption, then we are about to see a blowout in Australia soon. Don't get me wrong, I actually supported our shorter sharper lockdown, but you have to follow the numbers.

"We may also observe a loss of business relationships if these are not well managed during this period" - well, yes - the relationship with China has suffered a massive loss of trust which will certainly affect things for decades.

It's hard to forgive deception, the knowing release of WuHuFlu carriers onto flight destinations, the pathetic response of bought-and-paid-for proxies like WHO, and the attempts to use the ensuing crisis for frankly imperialistic ends.

I also think that it'll be the relationships that'll need mending or moving on, based upon what we just witnessed. Globalisation, whilst being very good for one country, has been tough on just about every other civilised nation you could mention. Our middle & working classes have been gutted upon the gospel of cheap overseas labour, which has dragged 200 million people out of poverty, by/with the actions of the other billion people, who work day & night for nothing. This is great for third world poverty but not too good for our own manufacturing & production bases as these skills have been outsourced(?) For me, AI is the key for NZ Inc. We must AI our business models so we can scale & compete globally. Yes, this is very hi tech & therefore needs a very high standard of education, which has been lacking for at least 30-40 years that I'm aware of. The Eds have become too political for their (and our) own good. Teach them how to think, not what to think & we'd have a chance. What chance of that?

What all this disruption says to me in the NZ context at least is that leaving everything to the private sector is in the long run senseless. The private sector has gone MIA. Its taken the government to restore order to the chaos in the corporate sector that is stemming from covid. How can this be when the corporation is supposed to be the centre of all things in a neoliberal economy like ours? It would appear our neoliberal thinking these past 40 years has been incorrect...

One would hope that many business owners will take a long hard look at their cash flow and surplus and the thought of upgrading the boat or SUV will pale to insignificance in the preference of having improved liquidity of their assets. Cannot sell the flash boat (or pay the wages with it) in a downturn. This will have an impact on the car dealers, boat dealers who may find the demand for new vehicles takes a bit of a dive. And their might be a few holiday homes put on the market for the same reasons

Those industries should read carefully what we've planned here in NZ to build economic resiliency the past 30years: Read the signs! - yesterday the removal of LVR & FHB deposits are just one of key measures hints as 'where to' for these industries should create their leaning post/backing in time of uncertainty. They must grab this opportunity to buy those commercial property on the markets (tenant covids victims), airbnb (tourism victims), personal RE (job looses). OZ banks are waiting for your industrial money to be channeled into a key resilience of NZ economic post (F.I.RE) - thus, where you can rely your back in tiredness & uncertain times.

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