5 minute read 1 May 2020
A man standing on a rock overlooking hong kong skyline at dawn from victoria peak

What the world can learn from China’s post-COVID-19 reopening

Authors
Pete Witte

EY Global Private Equity Lead Analyst

Helping clients and stakeholders understand the trajectory and impact of vital trends. Developing thought leadership and insightful content. Aspiring platform tennis pro.

Andres Saenz

EY Global Vice Chair – Industry Markets

Trusted advisor to leading businesses across industry markets. Ardent student of consumer behavior. Marathoner. Family man.

5 minute read 1 May 2020

As China emerges from lockdown, new consumer behaviors, technological innovation and ways of doing business are being confronted.

The novel coronavirus is one of the most challenging events in recent memory. The sheer scope of the disruption is, outside of periods of global conflict, nearly unprecedented in its scale and speed. While most managers both within and outside the private equity space are rightly focused on solving the most immediate threats to their businesses, attention will soon shift to a new set of challenges –reopening large-scale economies.

We can look to China for a measure of reference. On April 8, after 76 days, Wuhan’s lockdown lifted for its roughly 11m residents; non-essential businesses reopened, travel bans were ceased and the city went back to work, albeit under close monitoring. As the country begins to emerge from lockdown, businesses can learn four lessons from China’s reopening:

1. Risk mitigation for the workforce

Keeping the workforce safe and healthy continues to be the number one priority for companies across the world. As China’s businesses begin to reopen, businesses are taking steps to try to reduce the potential for future hotspots to emerge.

Across all businesses, a personal health code system enabling contact tracing has been launched and recognized across different provinces to speed up the process of getting people back to their company. Temperature checks continue, with businesses positioning infra-red thermometers at entrances. Start times are staggered and flexible hours are encouraged to reduce congestion at rush hours. Meetings are limited in the number of people that attend in favor of increased use of online meeting platforms. Workers are provided with personal protective equipment to limit the spread of airborne particles. Elevator buttons and door handles are cleaned hourly, hand sanitizer and other cleaning supplies are made widely available and workstations are spread out as much as possible.

In factory settings, some businesses are running more shifts per day, with fewer workers on each shift. They’re also limiting the movement of staff in each production process and eliminating the need for workers to cross over to other processes. Mealtimes are staggered to allow for fewer people at a time in dining areas.

Communication with staff is critical, so firms are pushing communications regularly via email and other apps (like WeChat) on COVID-19 matters. They’re also organizing staff into teams to help ensure key messages are fully communicated in a timely manner via team leaders. In some cases, companies are tracking staff via questionnaires, where each week employees answer questions about their and their family’s health, their travel histories, and other relevant information is collected.

2. Reassess and secure supply chains where necessary

One of the first and most visible impacts of the virus was exposing the vulnerability of global supply chains to disruption. As factories across China closed, both domestic manufacturers and those located abroad were unable to source many of the components they required. As China’s economy begins to reopen, supply chains remain a key priority. In some cases, purchasing departments are assigning extra full-time staff to call suppliers multiple times a week on orders and to closely monitor logistics. In some cases, staff are visiting suppliers’ factories to help ensure orders are properly executed. In other cases, companies are rethinking their supply chain more holistically and attempting to reduce their reliance on subcontractors and increase vertical integration, bringing additional capabilities in-house to reduce future disruptions. 

Additionally, many companies continue to diversify their production locations. The last several years have seen many companies, from within China and abroad, expand capacity to Southeast Asia to mitigate high production costs and in response to ongoing global trade tensions. Initially, these companies were less impacted during the peak of COVID-19 in China, as they could move the orders to offshore facilities. Now, however, with China starting to reboot its economy, supply chains in Southeast Asia are facing more severe challenges from COVID-19, leading some companies in China to consider moving some of their supply chain back to China or finding substitute suppliers in China.

3. Adjust delivery models where necessary

The coronavirus hit the world at a time when many business models were already under huge amounts of pressure to adapt to technology-enabled competitors and changing consumer preferences. As companies reopen after the lockdown, many are likely to find some of the delivery models they’ve used in the past may no longer be optimal.

Businesses are flexing their delivery models in order to remain responsive to customers under the constraints of the pandemic. The elevated levels of uncertainty that we’re likely to experience over the next 12 to 18 months mean that the companies that survive and even thrive, will be those that can most quickly pivot and adjust to changing conditions.
Ignatius Tong
EY-Parthenon Asia-Pacific Leader

Sectors such as retail, food service, and education may need to adjust their business models to engage their customers.  For example, an accelerating shift towards online consumer service offerings is likely to continue as the virus recedes.

Companies are also leveraging opportunities to speed up digitalization. For example, some car companies and consumer goods companies have begun to encourage dealers to launch more digital marketing and sales campaigns during COVID-19. Upon re-opening and moving forward, an enduring move towards systematically improving direct-to-consumer capabilities could fundamentally improve retail efficiency.

4. Be prepared for rolling lockdowns amid a “seesaw” recovery

While several promising treatments are currently being tested that may mitigate the stress on the health care system, expert consensus is an effective vaccine remains 12 to 18 months away. As a result, companies need to consider the path toward normalcy is likely to be nonlinear. Indeed, the most likely path to normalcy may be that of a “see-saw” shaped recovery that necessitates a series of short-term adaptations that will differ by sector.

Companies are having significantly more internal meetings – even daily in some instances – to discuss and quickly respond to changing markets, supply chain issues and evolving government policies. For some companies, actions can include shoring up the IT infrastructure that’s been hastily assembled over the last three months to enable remote working and developing more robust policies that support employees working from home.

For companies with large labor forces, automation may play a key role in reducing reliance on human workers. At the same time, short-term actions such as encouraging workers to take vacation, pushing for greater paperless work, and implementing strict controls on non-critical expenses are being taken to reduce costs.

Companies must be prepared to seize upon brief windows of opportunity as they arise. A scenario-based action plan that contemplates limited periods of operations and potential limits on the scale of those operations can be a critical tool for companies to build resilience to ongoing periods of disruption. For example, companies can consider creating buffers in supply chains that allow continuous operation with intermittent access to materials. They can model liquidity scenarios that envision additional periods of downtime, and they can prioritize sales and distribution to key customers and markets, overall, building greater agility and flexibility into the operating model.

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Summary

In many ways, reopening the global economy will be more challenging than locking it down. However, as China’s experience shows, judicious policy considerations combined with technology-enabled vigilance can allow businesses, workers and consumers to re-engage with prudence. Regardless of varying considerations and constraints across geographies, many of the same tactics will be relevant and applicable as the world faces what lies beyond COVID-19. 

About this article

Authors
Pete Witte

EY Global Private Equity Lead Analyst

Helping clients and stakeholders understand the trajectory and impact of vital trends. Developing thought leadership and insightful content. Aspiring platform tennis pro.

Andres Saenz

EY Global Vice Chair – Industry Markets

Trusted advisor to leading businesses across industry markets. Ardent student of consumer behavior. Marathoner. Family man.