As officials in China and around the world marshal their resources to contain the human cost of the novel coronavirus pneumonia outbreak, many businesses are just beginning to assess the economic effects.
History provides some signposts that can help companies navigate through the crisis and emerge stronger and better positioned. Among those past epidemics — avian flu, swine flu and severe acute respiratory syndrome (SARS) — only the 2002–2003 SARS outbreak seems truly comparable.
So far, Covid-19 appears to be less deadly to those it infects, with a mortality rate of 2% to 3% versus the SARS rate of 6.6%. But it is much more contagious and Covid-19 already has eight times the number of cases reported during the entire SARS epidemic, and the resulting number of deaths is now higher as well.
While it is too early to know for sure how severe the human and financial cost of coronavirus will be in China and around the globe, Bain’s research and experience demonstrate that for companies, a wait-and-see approach is often the most damaging move in uncertain times. Instead, the companies that will fare best during this crisis and be best positioned during the recovery will be those that act now.
We recommend five principles to guide executives during this time.
Start with the end in mind
• Review and adjust your long-term strategy. Assess market conditions and longer-term implications, define your company’s desired end state once the crisis has passed, and determine where to invest to gain market share.
• Adjust your 2020 plan. Incorporate the latest market condition changes into your 2020 budget and rebalance costs based on revised revenue forecasts.
Protect your people first
• Protect talent. Make the safety and well-being of employees your priority, and invest as needed to ensure a safe and healthy working environment.
• Prepare now for your future talent needs. Challenging times and uncertain market conditions often make critical talent available. Plan now and acquire the talent you need to fuel mid- to long-term growth after the coronavirus has run its course.
Cash is king
• Cut costs and manage cash. Pursue selling, general and administration (SG&A) and indirect procurement cost savings. Managing cash tightly and releasing additional cash trapped in the balance sheet will help the best companies, regardless of how long the epidemic lasts.
• Monitor your supply chain closely. Create a sufficient supply buffer that factors in traffic suspensions and supplier shutdowns, and monitor the end-to-end supply chain, including raw materials, inventory and delivery challenges.
Keep up with the change
• Monitor and adjust commercial levers quickly. Realign your product offerings, commercial organisation, channel partners and marketing approach to respond to changing market conditions, both now and after the epidemic ends.
Invest for the long term
• Be ready for opportunities as well as challenges. Proactively update your mergers and acquisitions (M&A) and partnership plans to include potential acquisitions, divestitures, partnerships and bold moves. Be ready to move quickly if opportunities present themselves. Consider the potential shifts in Chinese market conditions after the epidemic, carefully examining valuations and conducting due diligence before making decisions.
Weiwen Han is a Bain & Company partner based in Hong Kong and leads the firm’s Greater China offices. Karen Harris is managing director of Bain’s Macro Trends Group in New York. Jean-Pierre Felenbok is office head for Bain & Company Southeast Asia.