Now, the urgency is obviously to resolve the Covid-19 crisis. Later, nevertheless, it will also be essential to think about what shall happen next. Life will resume after the crisis, but we shall not be immune to more crises in the future. We are in a world of disruptions, such as natural disasters and pandemics. After Covid-19, business cannot resume as usual.
The current world economic model is operating on two principles: globalization and just-in-time. This paradigm has enabled a substantial reduction in production costs. It led to the development of many countries, particularly in Asia, which have become the workshops of the world. While the effectiveness of such a system has been proven, we now realize that it is also very vulnerable.
It is striking that an epidemic that starts in a small market in the center of China can spread globally in two months. Most probably, it will lead to an economic slowdown in the first quarter or even a recession in the first half of 2020. What can central banks do? The Federal Reserve has lowered its rates. For European central banks, having already very low-interest rates, it’s more complicated: fiscal policies will be necessary.
Natural disasters are becoming a new normal. The Taiwan earthquake in 1999, the Tsunami in Japan, and the floods in Thailand in 2011 have led to major disruptions in the economy. The same is true of pandemics: SARS in 2003, H1N1 in 2009, MERS in 2012, and now Covid-19. Can we believe that there won’t be any more?
This last pandemic has highlighted the fragility of global production flows. China, for example, supplies more than 40% of the electronic or electrical products of the world’s major economies, such as the USA, Europe, Japan, India, or Canada. The production of laptops has fallen by 50% at the beginning of this year, and that of smartphones is collapsing.
Such disruptions are unacceptable in the long term. Companies must, therefore, change their business model. The first challenge is to diversify supply chains to secure production. It means moving from a system of efficiency to one of resilience to deal with the unexpected.
This can be achieved through a policy of decoupling the economy (see my recent column on the subject). It aims to create a stable domestic market for businesses and a diversified international supply system. But this model is more expensive because it increases duplication and implies fewer economies of scale. Prices may rise, and profits may fall.
The other challenge will be to find new ways of working for employees. Teleworking, teleconferencing, or part-time work will develop even more. Progress must also be made to ensure that companies share the same sanitary processes.
Within its walls, a company can control health or safety procedures. Labor laws ensure that local standards are respected. However, when it comes to the relationships between companies, it is more complicated. What happens when a salesperson visits a customer, or an engineer has a meeting with a supplier? Do these companies respect the same sanitary rules?
Thus, it will probably be necessary to set up a sanitary certification process like the one which exists for quality with the ISO 9000 standards. Such a standard would ensure common practices and measures to safeguard reliable and harmonized sanitary relations between companies, wherever they are.
For this, companies can emulate the processes implemented by health organizations. Over the years and with experience, the health sector has established standards and crisis procedures aimed at dealing with disasters. Companies must do the same. Improvising for every crisis is no longer an option.
The same is true for the political world. All large meetings are potentially dangerous incubators in the event of pandemics. What would happen if the virus reached the refugee camps in Turkey or Greece? What if Bernie Sanders is tested positive after shaking tens of thousands of hands?
Well, best not to think about that.
The views expressed in the article are that of the author and not of the publisher nonnewz.com or its management.
This article is authored by Prof. Stephane Garelli- Professor at IMD business school – Professor at University Lausanne – Chairman Le Temps newspaper
The views expressed in this article are of the author and not necessarily the views of the publisher.
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