Remember the 2011 movie “Contagion”? It was about how a disease that originated in Hong King spread all over the world killing nearly 1% of the whole world population. In the movie, we saw realistic aspects of how the economy and the people reacted to the outbreak. One of the scenes in the movie showed a brutal incidence of people rushing into the town’s grocery stores and fighting for food and supplies while the virus prevailed all over them.
Looking at the movie, it showed us a true scenario of the reaction of people and the economy in relation to the pandemic. The good thing is that we all realise fear will not get us anywhere and we won’t just start killing people for supplies! However, the implications of this outbreak in our real world are really sad. It hurts a lot of businesses, especially small businesses.
Not only the whole supply chain of major and minor companies like Apple has been affected, but it also impacted the employees and business owner on a much larger level. Especially, small business owners with tight profit margins have felt the wrath of this epidemic.
1 Export and Import Disruption – No country wants to increase the risk of exposing themselves to this virus. That even includes barring transportation of certain goods and service from country to country. In India, upto 80% of the components used for mobile phone manufacturing are imported from China. 80% of solar cells and modules come from China. 85% of toys come from there and also 37% diamonds that are exported from Surat go to Hong Kong. In the last month, no new consignments have been received for toys from China and also two international diamond expos has been postponed. Similarly like this the Pharma and Auto Industry has been affected.
2. Exchange Rate Volatility – The Cboe/CME FX Euro Volatility Index measures the turbulence in the euro dollar futures market, and in the past week, it rose by 21%. The reason for the occurrence of this volatility is because it led investors to predict that the Federal Reserve would decrease lending costs instead of maintaining it at the current level. Even in India, the domestic currency has seen a fall. Analysts expect the rupee to remain under pressure and weaken gradually.
3. Supply Chain Disruption – ForeignPolicy, on an. article they wrote referred “that supply-chain disruptions could wreak far greater havoc on the global economy—and national security—than most CEOs and governments realise.” In the article, they talked about the multiplying effect of the exiting suppliers in a certain country and how it is layered. So basically, if a company like Volkswagen has 5000 suppliers in china, each with an average of 250 tier two suppliers, the total number of suppliers would turn out to e 1.25 million!! Also, the logistics operations have been impacted for the companies who used China as a connecting country to serve to other counties.
4. Hurting Investor’s Sentiments – Due to the outbreak of corona virus all over the world, it has been observed that the factors of production of a business have been highly impacted. Labour problems like employees getting sick and then paying for their sick leaves increases the cost of running business operations. Also nobody in the short term would buy land near the area of the epidemic. Capital invested would go down as increased costs and time and hence investments.
5. Increased Expenses – The small businesses in order to cope up with the consequences caused by Covid-19, have to incur certain expenses. These expenses can vary from paying for your employees sick leaves, to the wastage of all the resources due to customer’s not buying your product. In contrast, your expenses could also go up in the way of acquiring the product to meet the consumer’s demand by figuring out a different supply chain or contacting a completely new supplier by paying extra.
6. Tourism Disruption – Last of all, for a few countries that depend majorly on Tourism like Croatia and Thailand, would be adversely affected by this epidemic. People wouldn’t want to leave their homes to visit another country especially when they have to come in contact with the airport. The airport, least to say, is the major hub for transmission of the virus. As seen in the last few months, countries that got affected outside China were due to foreigners from China or Italy coming in to those countries. Hence, the airline sector, hotels, restaurants will suffer.
Small businesses have a long way to go. Whether they are in the finance sector, retail sector or even the tourism sector, they have to endure this commotion for a while longer in order to sustain themselves over the long term. If any of our readers have been caught in this bad web, we wish that you cope up and rise stronger than ever. After all, its only what doesn’t kill us makes us stronger!
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