by Thomas Pointon
Many topics worry the mind as the world adapts to the changes forced by the novel coronavirus pandemic. The US Presidential and Vice-Presidential debates focused heavily on the topic, specifically its extremely negative economic effects. According to Gita Gopinath, “since April 2020, the economy is on its way to suffering the most severe global recession since the Great Depression” (Gopinath, 2020).
One sector worth analyzing is the Industrial sector. As an excerpt from Investopedia explains,
“Businesses in the industrial goods sector make and sell machinery, equipment, and supplies that are used to produce other goods rather than sold directly to consumers”
(Chappelow, 2018)
US businesses within this sector operate primarily in the telecommunications equipment, pharmaceuticals, personal care products, food, beverages & tobacco, engineering, electronics, consumer goods, construction equipment, chemicals, automotive, aerospace & defense, to name a few. Many do business with each other (B2B), so an interrupted supply chain in one company affects several through a domino effect. Additionally, end-user demand for products has sharply decreased, resulting in reduced demand for constituent products such as parts. For example, auto tire manufacturing relies on chemicals for their products; if the demand for tires falls, so does the demand for the associated chemicals.
Each company is handling the pandemic in various ways (some even benefitting), but to stay afloat, all will need to adjust their entire business structure. The New York Times wrote an article concerning JP Morgan, which summarized some of the major questions concerning the labor force in particular:
How much pressure should companies put on employees to return to the office? How will sporadic outbreaks affect workers’ attitudes toward coming in? When, if ever, will workers get used to the cycle of going to the office until a new case emerges, and then are told to stay home? Is it better just to deal with the consequences of remote working until there is a vaccine?
(The New York Times, 2020)
A major pharmaceutical company, Merck, put out a statement about how they will address the problem:
As one of the very few companies that has continued to invest in both vaccines and anti-infective medicines, Merck knows we have a special responsibility to help advance vaccine and antiviral efforts as part of our overall COVID-19 response.
(Merck, 2020)
In short, all industrial companies have several questions going forward. The following essay addresses many of these questions in detail.
What are the overall economic effects that Covid-19 has had on the industrial sector?
Since March 2020, bottom lines have suffered from closing stores, a reduction in sales, a reduction in workforce and employment capabilities, a reduction in supply chain and manufacturing, and regulatory requirements to continue operations. More than 163,735 small businesses have closed in total (Kreznar, 2020), and while this is mostly due to restaurants and retailers, industrial companies have also gone bankrupt due the pandemic.
Large companies such as Verizon have taken a hit as well: “A reduction in [international and roaming] fees and usage-based charges could pressure June-quarter services revenue growth by 3 to 5 percentage points” (Bary, 2020). Boeing has likewise suffered: “So far this year, the stock is down nearly 60%, compared with losses of 13% and 18% for the S&P and the Dow. The stock fell 54% in the January-to-March quarter, compared with a loss of 20% for the S&P and 23% for the Dow” (Assis, 2020). Boeing had to delay their new 737 Max launch until “at least late summer or early fall [of next year]” (Assis, 2020). Apple has encountered issues as well: “Apple shut down all retail stores, corporate offices, and contact centers in China for two or more weeks” (Clover, 2020).
Every company follows a similar pattern, and prices-drops for various products in this sector prove the declining demand for manufactured goods.
In addition to the reduced profits, store closures, and delays – the workforce at each company has shifted significantly. In addition to travel restrictions and mandatory quarantines, Apple has to deal with low labor return rates when trying to ramp its factories up to full production (Clover, 2020). Some companies such as Boeing try to follow the regulations as closely as possible:
Return to work ‘as to include staggered shifts, face-covering requirements, and social-distancing measures, among other precautions. Health checks at the beginning of every shift and voluntary temperature screenings were also part of the plan’.
(Assis, 2020)
The increased regulations for social distancing requirements and increased cleaning staff and costs force companies to adjust their staffing plans accordingly; companies’ ability to rely on a virtual workforce instead of an in-person one increases in popularity with every passing week. However, some industrial companies, especially manufacturing, still struggle due to the need for on-site workers.
Are there any pros to this shift, and if so, what are they?
It seems almost impossible that anything good could originate with this deadly virus, yet companies in the industrial sector do get several boons. Governmental aid to pharmaceutical companies has been especially useful to Pfizer, which “…gets $1.95 Billion to Produce Coronavirus Vaccine by Year’s End” (Weiland, 2020). More examples of governmental aid to industrial pharmaceuticals show the desperation of the US government, which provides a huge benefit to companies such as Merck, Pfizer, and Eli Lilly. Other companies have noticed opportunities in analytics, e-commerce, and social media (Cortez & Johnston, 2020).
Luckily, most companies that have noticed these opportunities already had the infrastructure in place, granting them a significant competitive advantage. Apple has started to develop “exposure notification APIs developed with Google” (Clover, 2020). Both companies stand to gain much by taking advantage of this opportunity. Business Wire found another market opportunity: “…with the outbreak of this pandemic, a light rise in the demand for the packaging materials has been increased to prevent the contamination of food, medicine, personal care, and medical products thereby creating a significant demand for chemicals involved in the packaging industry” (Business Wire, 2020).
What adjustments have certain industrial companies made, and what other adjustments should they make to remain profitable?
Apple intends to “…engage in several activities including doubling donations to charities, closing offices and stores, providing unlimited sick leave to those infected with Coronavirus, [and] readjusting jobs for ‘work-from-home'” (Clover, 2020). As seen from Apple, the industrial sector currently adjusts business in several key ways. The move to e-commerce seems to provide the quickest and easiest way for adaptation:
“Just like it did in China, Nike has been able to quickly move merchandise destined for physical stores—its own or those of wholesale partners, many of which have closed stores—to its e-commerce sites, a move one executive called ‘expanding our digital pipe'”
(Cheng, 2020)
PepsiCo went so far as to state that e-commerce is the future of sales:
‘Whoever wins in e-commerce now and is able to capture those families that are trying this e-grocery service for the first time is going to win those families in the future,’ PepsiCo CEO Ramon Laguarta said on the company’s call Monday. ‘We’re investing heavily in trying to be the first in that channel. … E-commerce is a key area where we think we can gain market share’
(Wahba, 2020)
E-commerce obviously adjusts for changes in consumer shopping methods and helps increase demand for industrial goods, but the actual products manufactured also play a part: “Industrial manufacturers should target low-priced sales opportunities, particularly in countries with a low long-term orientation and high uncertainty avoidance” (Habel, Jarotschkin, Schmitz, Eggert, & Plotner, 2020).
Counter-intuitively, low-priced sales opportunities have shot up in demand due to companies needing to stock up on cheap mandatory goods needed for operation. Companies should, therefore, focus on spare parts and low-priced constituent products to supply the increased demand. Other companies took a different approach and changed their product lines:
We are using our manufacturing capacity, as well as our deep expertise in areas including engineering, logistics and finance to carry out initiatives that serve our communities, deliver on our commitments to our customers and protect our employees.
(Technologies, 2020)
IBM introduced another product in the form of supercomputing. They are using supercomputing technology to provide aid such as Deep Search Service, drug candidate exploration, IBM functional genomics platform, world community grid, and more. In coordination with the White House, IBM strives to provide 400 petaflops of computing power (IBM, 2020).
These new technologies directly show the power of capitalism, where goods are provided dependent on need. By far, the area which most companies have adjusted the most is their staffing. Raytheon Technologies, for instance, expects most of the hiring and on-boarding processes to be done virtually (Technologies, 2020).
Those companies that cannot bring employees back to work “should prepare for slower business concerning their employees while infections are rising (trainings, internal projects, seminars, etc.)” (Habel, Jarotschkin, Schmitz, Eggert, & Plotner, 2020). In addition to finding this non-work related improvement, they should also focus on changing management techniques, such as “delegating non-critical decisions to middle managers and front-line employees” as well as “coordinating functions and hierarchies to operate under clear constraints that foster agility in the interaction with internal and external ties” (Cortez & Johnston, 2020).
To combat the reduced profits caused by the novel coronavirus, companies should move to e-commerce, target low-priced mandatory goods, develop new products to combat issues related to the virus, and entirely change their staffing and workforce plans.
References
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Bary, E. (2020, July 22). MarketWatch. Retrieved October 2020, from Verizon is better off than rivals, but still not immune to coronavirus effects: https://www.marketwatch.com/story/verizon-in-the-age-of-covid-19-the-simplest-telecoms-business-could-be-the-most-secure-2020-04-10#:~:text=The%20company%20also%20increased%20its,t%20pay%20their%20bills%20due
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Kreznar, C. (2020, September 16). Small Businesses Are Closing At A Rapid Pace, With Restaurants And Retailers On The West Coast Among The Hardest Hit. Retrieved October 2020, from Forbes: https://www.forbes.com/sites/christiankreznar/2020/09/16/small-businesses-are-closing-at-a-rapid-pace-with-restaurants-and-retailers-on-the-west-coast-among-the-hardest-hit/#5f8059985033
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