Preemptive strategies needed to handle virus crisis

Bain advises short-term cost cuts, long-term investments

By Kim Bo-eun

The outbreak of the coronavirus in Wuhan, and its rapid spread across China and other countries, has been sounding alarm bells for businesses around the world.

Many companies based in China shut down their factories for weeks, which has affected global supply chains for businesses everywhere, ranging from tech companies to automobile manufacturers to retailers.

The extent of damage for businesses is set to be much greater than that incurred by the Middle East Respiratory Syndrome (MERS) outbreak in 2015, or the Severe Acute Respiratory Syndrome (SARS) outbreak in 2003. This is based on COVID-19's much higher level of contagion.

Businesses here are set to be afflicted by setbacks in production in China, which is Korea's largest trading partner. They also face disruptions at plants here, after measures taken when the number of confirmed cases spiked to the second largest after China. More than 7,000 people have been confirmed to have been infected in Korea, over 50 of whom have died.

Infections in the city of Daegu and North Gyeongsang Province, which account for 90 percent of the total, have prompted businesses to halt production facilities in the region.

Samsung Electronics shut down its plant in the city of Gumi which produces its latest smartphone model for three days last month. Hyundai Motors also suspended production at its plant in the city of Ulsan for a day, after a worker of a subcontractor was confirmed to have contracted the virus. Hyundai Motor halted operations at all of its seven local plants Feb. 7 through Feb. 10 as parts suppliers in China stopped production. This was the first time for the automobile manufacturer to halt operations at all of its plants since the Asian Financial Crisis in 1997.

A recent Bain & Company report urges business to take a swift response to minimize damage.

"A wait-and-see approach is often the most damaging move in uncertain times," authors Weiwen Han, Karen Harris and Thomas Luedi said in the report published Feb. 10.

"Instead, the companies that will fare best during this crisis and be best positioned during the recovery will be those that act now."

Five principles

Bain advises businesses to examine current conditions with a long-term strategy in mind.

"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," the report says.

The report recommends businesses adjust their plans for 2020, "incorporating the latest market condition changes into your 2020 budget, and rebalance costs based on revised revenue forecasts."

Effective human resources management is another key task for businesses.

"Make the safety and well-being of employees your priority, and invest as needed to ensure a safe and healthy working environment," the report says.

This includes making flexible work arrangements, such as incorporating technical means to establish off-site work parameters.

Bain also suggests preparing in advance for future human resources needs to fuel mid-to long-term growth after the coronavirus has run its course.

In the meantime, cutting costs is crucial for afflicted businesses.

"Pursue selling, general and administrative expenses and indirect procurement cost savings. Managing cash tightly and releasing additional cash trapped in the balance sheet will best help companies regardless of how long the epidemic lasts,” the partners advise.

At the same time, businesses must closely monitor their supply chains.

The report advises businesses to "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."

Businesses are required to make adjustments to commercial levers according to changing circumstances.

"Realign your product offerings, commercial organization, channel partners and marketing approach to respond to changing market conditions, both now and after the epidemic ends,” the report says.

Finally, businesses should be investing with a long-term view.

"Proactively update your M&A and partnership plans to include potential acquisitions, divestitures, partnerships and bold moves.”