The impact of Coronavirus on international Supply Chains

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February 5, 2020.

The current situation regarding the spread of the disease known as Novel Coronavirus (2019-nCoV) is of 20,636 cases worldwide, with 20,444 of these occurring in mainland China. So far there have been 427 casualties and 718 recoveries. The virus spreads extremely quickly, as only ten days ago the reported cases of infection amounted to fewer than 3,000. Outside of China, 192 cases have been confirmed in 27 different countries, with most cases occurring in Asia, Europe, North America and Australia. Whilst the situation should still be treated very seriously – as the crisis is far from over – it is important to note that in the last week recoveries have started outnumbering casualties (Johns Hopkins CCSE, 2020).

According to a report by the Laboratory for the Modeling of Biological and Socio-technical Systems (MOBS Lab), the five countries at highest risk of importing the virus are Thailand, Japan, Taiwan, South Korea and the United States. Obviously, the fact that the situation is constantly evolving is an invitation to take these purely as indications and not definitive data (MOBSLab, 2020).

At the moment, large companies in Asia are taking rather stiff precautions to protect their staff and their customers, closing stores and limiting the number of employees traveling to the affected locations. These include Starbucks, which has closed around 4100 stores in China, and McDonald’s, which has suspended all activities in five cities involved in the epidemic. Other notable brands implementing such procedures include Microsoft, Facebook and H&M (Forbes, 2020).

In this regard, supply chains deserve a specific analysis, especially since companies with suppliers in mainland China are experiencing severe disruptions. Among the most popular brands that are already feeling the impact of the virus are Apple and Bosch (Forbes, 2020).
As for Italian companies, the virus is already causing business disruptions. Italy’s imports from China amount to over 31 billion euros (7.2%), while exports exceed 16 billion euros (3.4%). A large portion of this trade comes from the manufacturing sector, both in terms of imports and exports, with products such as machinery, transportation equipment, and textiles products (Observatory for Economic Complexity, 2017). It is worth noting that preserving trade across international supply chains also means saving jobs and looking after the health and safety conditions of the employees, which is critical during pandemics.

On a more qualitative and granular level, it is possible to observe the behavior of certain leading Italian manufacturers, who have China-based branches and suppliers. FCA Italy, for example, has seven plants in the areas of Shanghai, Suzhou and Hangzou, which provide production, robotics and assembly services. The company has currently restricted staff trips to China, except for vital business issues and only after serious health and safety consultations (Finanza Online, 2020). Luxottica, another industry giant, has a distribution center in Dongguan, responsible for 46% of the company’s total production. The center includes over 12,000 employees in 3 factories and it contains specialized laboratories. The center is expected to remain closed until February 9, while Luxottica’s stores in Wuhan have also been closed (Corriere delle Alpi, 2020).

On the other hand, Leonardo, which sells military equipment to the Chinese government, does not report the implementation of any special measures, despite having three offices in the vicinity of Shanghai and Beijing. However, the impact of the restrictions imposed by the virus could extend into the medium or long term due to a contraction of the Chinese market. In addition, Leonardo recently reached an agreement with the Chinese group Kangde Investment for the construction of helicopters, which will also leverage a brand -new production center in the Jiangsu region, where to date there are about 270 confirmed cases of contagion.

Comparing the response of these Italian companies with other organizations around the world, it is useful to look at the data reported by the MIT Center for Transportation and Logistics, where a team of researchers conducted a survey of 379 companies, analyzing their supply chain response to the new coronavirus emergency. Among the respondents from the manufacturing sector (around 58%), 41% are preparing a strategy and following the news, while 42% have already restricted travel to China (MIT, 2020).

Business continuity management systems can support companies in preparing for relatively rare but high-impact events such as pandemics, through horizon scanning activities. These are important because they can highlight the difference between the perception of the threat landscape and their real impact. This contrast is well highlighted in the Business Continuity Institute’s Horizon Scan Report 2019, a study conducted on over 500 companies, where despite the fact that pandemics had registered a significant impact in the past, participants reported relatively low concerns about the following twelve months (BCI, 2020).
Looking at the various measures taken to combat the spread of the disease, companies are also taking precautions aimed at personnel who present the initial symptoms of the virus or who have traveled to areas affected by it. Possible precautions to avoid possible contagion include:

Remote work;
• Forced holidays (ensuring additional days for the staff involved);
• Activation of pandemic emergency management plans;
• Identification of a team dedicated to managing this emergency;
• Identification of a contact person for possible reports of contagion within the company;
• Use of alternative workplaces;
• Review of the operational staff of suppliers who may be infected or who have traveled to the affected areas. This includes contractors;
• Management of internal and external communications, with definition of roles and responsibilities.
For further developments, it is important to continue monitoring sources such as the World Health Organization’s (WHO) weekly bulletin, MOBS Lab, and the real-time tracking map provided by Johns Hopkins University.

Author: Gianluca Riglietti, Head of Research & Intelligence at PANTA RAY


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