When was the last time we witnessed a disaster that severely disrupted the supply chains of more than 5 million companies worldwide simultaneously? Looking back over the past two decades, I can't think of one. In the last days I have written several articles. on the economic impact of this coronavirus outbreak, and what we have seen so far could only be the beginning. With each additional week that much of the Chinese economy remains in a virtual stalemate, things will get even worse. Today, China accounts for approximately 20 percent of world GDP, but that does not tell the whole story. At this point, the rest of the world has become so dependent on Chinese exports that any type of prolonged closure for Chinese manufacturing would be a complete and absolute nightmare for global supply chains. In fact, a new study that has just been launched by Dun & Bradstreet has concluded that the outbreak of coronavirus in China "It could affect more than 5 million companies worldwide"…
The new outbreak of coronavirus and the subsequent closure of large areas of China could affect more than 5 million companies worldwide, according to a new study.
A special report issued by global business research firm Dun & Bradstreet analyzed the Chinese provinces most affected by the virus and found that they are closely linked to the global commercial network.
Many people may assume that we could "do these things elsewhere", but that is not so easy.
New factories would have to be built, workers should be trained, etc.
And as Willy Shih of the Harvard Business School has pointed, there are "some things that are only done in China these days" …
There are some things that are only made in China these days, and not only electronics and regular toys (consumer products), are active pharmaceutical ingredients that enter pharmaceutical supply chains throughout the world.
So what will happen if economic activity in China does not return to normal in the short term?
That is a very good question. Unfortunately, there will be a shortage and global supply chains will become incredibly tense.
According to the new Dun & Bradstreet study that I mentioned earlier, 938 of the Fortune 1000 companies have at least one "level 2" provider in the region…
The Dun & Bradstreet researchers found that at least 51,000 companies worldwide, 163 of which are on the Fortune 1000 list, have one or more direct or "level 1" suppliers in the affected region, while at least 5 million, and 938 in Fortune 1000, have one or more "level 2" providers.
The impact on companies in China and around the world is already dragging economic growth forecasts for the year.
In some cases, the breakdown of global supply chains will simply lead to higher prices for Western consumers.
But in other cases there will come a time when certain products are not available at all. The following comes from Zero coverage…
A new survey through the Shanghai American Chamber of Commerce (AmCham) found that 50% of US companies operating in China say that factory shutdown has affected their global operations due to the Covid-19 outbreak, he said. Reuters.
Around 78% of these companies warn that currently their staff is scarce, which would prevent the resumption of total production, leading to massive shortage of products in the coming months for western markets.
Massive shortage of products?
That doesn't sound good at all.
Hopefully, this outbreak will begin to fade and such an ominous scenario will not materialize. But at this point even apple He is admitting that revenues will be well below expectations this quarter. In explaining this to the public, Apple cited a couple of reasons …
- The first is that iPhone® worldwide supply will be temporarily restricted. While our associated iPhone manufacturing sites are located outside Hubei province, and although all these facilities have been reopened, they are increasing more slowly than we had anticipated. The health and well-being of each person who helps make these products possible is our top priority, and we are working in close consultation with our suppliers and public health experts while this ramp continues. The shortage of iPhone supply will temporarily affect worldwide revenues.
- The second is that demand For our products within China it has been affected. All of our stores in China and many of our associated stores have been closed. In addition, stores that are open have been operating at reduced hours and with very little customer traffic. We are gradually reopening our retail stores and will continue to do so as consistently and safely as possible. Our corporate offices and contact centers in China are open, and our online stores have remained open at all times.
Needless to say, the US financial markets. UU. They are not responding favorably to this announcement.
But what is happening in other places is nothing compared to the economic nightmare that is developing within China at the moment.
Because of the virus, very few people even want to leave their homes. As a result, consumer spending has almost completely disappeared.
In fact, a CEO claims that there is virtually "Without internal consumption" in China now …
Alan Lim, of E-Services Group, says that now "there is no complete domestic consumption" and that "factories have, at best, a 25% production … they need government approval to say that they can to work".
Of course, it is completely possible that what is happening in China may begin to happen in other places if this virus continues to spread.
The total number of confirmed cases outside of China is rapidly approaching the 1,000 mark, and that is not something to be alarmed yet.
But if that number continues to increase at an exponential rate, we will soon see a great deal of panic worldwide, and that will be extremely bad news for the entire world economy.