Across Asia, countries are going into lockdown, to attempt to limit the spread of COVID-19. Travel restrictions, internal movement controls, and closing non-essential businesses are part of government attempts to ‘flatten the curve‘.
With consumers essentially under virtual house arrest, businesses are finding it extremely hard to realise revenue. In China, where the country was under lockdown since Chinese New Year, the estimated cost to the economy is around US$60 billion.
That damage is, for the most part, not due to the virus itself so much as efforts to prevent it spreading. Fear of infection means many people will choose to avoid activities they think might expose them to the risk of infection. Restaurants, cinemas, transport providers, hotels and shops are all quickly feeling the impact.
Furthermore, with how quickly the virus is spreading across the globe, countries are sealing their borders to foreigners. For an example of how its affecting business, airlines are slashing their capacity (and costs) in a desperate attempt to stay afloat. Singapore Airlines, one of the world’s most profitable airlines, slashed 96 percent of its capacity – running just nine planes from 147 before the COVID-19 outbreak.
For SMEs, that can only mean worse tidings to come. Extended lockdowns are not out of the question – Malaysia has announced that its movement control order has been extended by another 14 days, ending 14 April. According to the Malaysian Institute of Economic Research (MIER), this may result in Malaysia’s GDP shrinking by about 2.9 percent for 2020 compared to 2019.
Besides the shrinking real GDP, MIER projected household incomes may fall by 12 percent relative to the baseline, which amounts to RM95 billion. “Such a fall is manifested in a sharp decline in consumer spending by 11 percent, despite the drop in general consumer price level by 4.4 percent,” it said in a statement.
Can SMEs survive this?
It’s a hard question to answer. Cash flow is obviously impeded, and many businesses have been forced to either cut staff or ask them to take unpaid leave. Offices and storefronts have been shuttered, leading to loss of customers. The modern supply chain, which relies on an interconnected web of worldwide suppliers, has been devastated. For the business world, COVID-19 is like a brushfire that will sweep through and burn the unready.
But all is not lost.
Like a brushfire, it clears away the dead wood and allows the strong to thrive. Businesses which have hoarded cash during easy times will find riding out COVID-19 to be much more manageable. Strong fundamentals, such as customer experience, cash flow management, and managing people well will see SMEs that are prepared survive the brushfire.
In addition, we are also in a worldwide experiment. Unprecedented numbers of people are commuting remotely or otherwise working from home. This has given rise to a whole new type of online economy, bound by the Internet and run on goodwill. For the first time, employers are finding out how to cope without an office full of employees. Customers are finding out how to cope without physical shops.
Businesses that can take advantage of this new paradigm will be handsomely rewarded.
Will this signal a permanent shift, once COVID-19 blows over? It’s hard to say, but it almost certainly will result in many people rethinking their priorities. Businesses need to heed this lesson and be better prepared for the next calamity. Emphasis on business continuity procedures and better cash flow management will certainly come into play.
Meanwhile, for the rest of us, stay home and be safe.