Corona - New Business Paradigm

Corona - New Business Paradigm

Corona or COVID -19 virus which has been declared a global pandemic is impacting economies across the world and will fundamentally alter the way we do business and in fact will realign new economic models both externally in dealing with nations and internally while dealing in domestic production.

The extent of change and damage will depend on how long this virus will last even if it exist in one part of the world, its fear will cripple the entire world. We are living in a very inter-connected world, so for the global recovery to happen, this virus should disappear from the face of this earth, before full normalcy can set in. That seems a daunting task in the present scenario. The earliest estimate of a reliable vaccine or medication is by mid – 2021, which is a good one year from now. The delay in full recovery will have serious and far reaching implications on humans.

Let’s look at some of the implications of this virus:

• Economic – There is a general consensus that there will be wide spread economic slowdown if not recession in the global economy. Low fuel prices and commodity prices though will benefit some of the economies, it will spell doom for some of the other economies especially in Africa and South America. If the pain lasts long, will it fundamentally change the multilateral system which was already under severe strain thanks to Trumps America first policy. Will the ‘China Virus’ cause and create an environment of distrust with China and movement of investment and supply chain outside of China. Will a ballooning fiscal deficit of the most of the economies who were hitherto trying to resist neo-imperialistic designs of China, finally give in to the Chinese lure and bailout packages. This virus will break the backbone of a lot of economies around the world and the only country which is in a position to help them with dollar investment is China. Ironically in the global dominance of China, USA has the biggest role to play. USA is the only economy in the world which does not have to worry about inflation while printing its own currency. It buys goods and merchandise from China, China gets dollars and then China buys rest of the world. The rest of the world has been squeezed out in the trade and currency wars of China and USA. And after the corona outbreak, its definitely advantage China

• Personal -  the psychological impact of the virus, lockdown, negative news, erosion of real income, business and wealth will have a far reaching effect on the psychology of people post Covid -19. This can have a far reaching effect on the consumption patterns of people, the way they will interact with people, will it give rise to racist rant against the Chinese or people with oriental looks. Fear is a strong negative emotion and even though humanity will come out of the Covid virus, the strains and stress will and can remain for a longer period of time.

What can India do?

We have fairly limited options and choices available with us. The challenges will remain and will stay for a year before global economy finds its semblance. The answer to most of our problems is perhaps in going back to the Gandhian model of economic development.

• Create Self Sufficient economic clusters
• Boost Village Economy

The biggest challenge for the Indian industry post Covid -19, will be availability of financial capital and markets for the produce.

• Financing will be a challenge for MSME, because the amount of credit availability will be limited and the large corporate sector will squeeze the MSME. A large part of financing is required for capital expenditure and working capital. Whilst capital expenditure may be necessary in some of the industries and in key areas, it may not be required if we can adopt or adapt the chaotic models of Jeans manufacturing (Tank road, Delhi), Furniture (Kirti Nagar) and Footwear (Karol Bagh, New Delhi). These are classic models of cluster development and have shown that an outsourced model can work effectively and also be a very low cost model. (although quality concerns remains which can be addressed). The government should study these models and not only support the ecosystem under which they operate (infact make them better) but also try to replicate their success in other industries. Standardise wherever possible and adapt wherever necessary.

• Post covid, MSME will be under severe stress of salaries, reduced orders, workers gone back to their home town, payments not coming through. The last thing they want is a draconian labour laws and provisions. The government of the day has already announced a serious of schemes which are aimed at voluntary contribution towards pension, health and other benefits. MSME should be allowed to give their employees the option of opting for a voluntary rather than compulsory enrolment. Minimum wages are the biggest hurdle in adoption of greater labour force in the factories.  A higher minimum wages is counter productive for both the company and the worker. The factory goes for a machine replacement which requires capital outlay, however if it does not operate that on a 75% capacity it is likely to incur loss. And because of the machine, the worker has lost his job which otherwise he would have got.

• The policy makers must realise that jobs of the future will be very different from the what we have seen in the past and post Covid, the trend will only accentuate further. In fact there should be a shift from job creation to income generation. Whilst the avenue for job creation may be shrinking and limited, income earning avenues are increasing by the day. 

• It is also imperative for Companies to realise that we should now work in the area of Collaborative Competition. There is not point creating excess capacity in each factory and then buying raw material at a higher price (because of fragmented buying) and selling the finished product at a lower price (because of fragmentation in selling and competition). We are living in an era of digitally connected world, where data is available at the press of a button. It is foolish to think that the factory next door doesn’t know the buying price or selling price or my customers. The success lies in building relationships.

The other aspect of financing is working capital. Look at the irony of our system. As buyers and traders, we are willing to pay advance to manufacturers in China and very rarely do we complain about quality or seek refund. And in contrast to the our Indian counterparts, we seek credit line of 90-120 days and also willing to send back goods which are left unsold or with slight defect. In such a milieu, the working capital requirement for MSME becomes daunting. An unusually long credit line along with high risk of delinquency makes the working environment daunting. If only we can start helping each other with timely payments and quality products, we can go a long way in solving the business environment for the MSME segment.

• Markets: Markets for Indian MSMEs are either domestic or external. Globally, companies and nations will be looking to diversify their sourcing basket and de-risk themselves from China. To what extent can Indian companies leverage the trend, will depend upon their preparedness to scale up and adapt to new challenges.

Domestically, consumer demand is poised to grow at an exponential rate and these 21 days companies will give companies adequate time to chalk out their strategy on which segment they should focus. B2C or B2B. The excess capacity in the production line can be used to churn out a different product line.

Coming back to Gandhian model, we have already seen the viability of creating self-sufficient clusters and how they can give boost to income generation.

Boosting the Village economy is vital for the survival of India as a whole. The twin benefits of boosting village economy will result in spurt in demand in Tier II / Tier III towns and will take off the burden from the already crumbling infrastructure of big cities. The investment in roads infrastructure will and should give a fillip to this approach. Not only the labour will be easily available but the land will be much cheaper.