How Chinese businesses are adjusting to coronavirus outbreak
Hong Kong (CNN Business)For most of this year, China has been living seven weeks in the future.
The world’s second largest economy was the first to be hit by the coronavirus outbreak, which forced it to halt travel, shutter stores and theme parks, mandate masks in public and encourage the public to embrace social distancing.
Now, the country is gradually reopening. And as the rest of the world prepares to do the same, companies that were forced to first respond to the outbreak in China are using their early experiences to form a blueprint for other regions.
Corporate responses in China have become a focal point for Wall Street analysts in recent months, as global brands such as Nike (NKE), Starbucks (SBUX) and Disney (DIS) share their experiences in the country on calls with investors and credit their teams there for guiding them through the crisis.
Nike, for instance, recently said it was “seeing the other side of the crisis in China” and has learned best practices that could be transferred elsewhere. And when Volkswagen (VLKAF) reopened its giant plant in Wolfsburg, Germany, this week, it cited its experience resuming business at 32 of its 33 factories in China.
The new strategies that companies are introducing won’t take life back to normal, according to business leaders and experts. Instead, they say the crisis could permanently upend the way we work, shop and manage our businesses.
“This is the new normal,” said Alain Benichou, CEO of IBM China. “There are many wake-up calls that we are working on right now.”
Here’s a look at how the future of business has changed — and how China is giving us a preview.
The way we work
For Despina Katsikakis, the average workplace is already starting to look very different.
Katsikakis, a London-based partner who focuses on innovation and emerging practices at commercial real estate firm Cushman & Wakefield (CWK), has been advising companies around the world on the return to work.
In China, the firm has already helped move more than 1 million workers back into offices. In Katsikakis’ view, the crisis has fast-forwarded the future of work by as much as a decade.
The firm is hoping to capitalize on that shift, starting with a visual guide for its clients called the “Six Feet Office.” The concept, a “living laboratory” in Cushman & Wakefield’s Amsterdam office, was based on its takeaways from China and other feedback from workers and clients across the globe.
“It is a prototype that basically is there to inspire people to think about solutions, on how to bring into play social distancing, how to prepare the building appropriately, and really to nudge people towards different behaviors,” said Katsikakis.
In this new normal, desks are, unsurprisingly, spaced out six feet apart. Health officials around the world have for months advised people to maintain this distance from one another to prevent spreading the virus.
Workers are instructed to walk “one way only” — clockwise — throughout the office, to avoid moving past each other and potentially spreading more germs. Katsikakis said the guidance was based on consultations with health care experts, who shared how medics were navigating in hospitals.
One of the biggest takeaways the firm has gained from China, she said, is that “we need to ensure we have trust that we’re going back to a healthy environment.”
Over the next few years, she envisions sensors replacing most of the shared surfaces we used to touch. Instead of swiping your entry pass to get indoors, for example, you might face a facial recognition camera or pull up a QR code on your phone.
Companies are also expected to invest more in air filtration systems in the office to reduce contaminants (Volkswagen, for example, has set its air conditioning units to max at Wolfsburg). Some may even install plexiglass sneeze guards at desks, said Katsikakis. To avoid contaminating surfaces, her firm suggests placing a pad of paper over your workstation and replacing it daily.
Since unveiling the “Six Feet Office” prototype, the firm has been flooded with inquiries every day — if not “every hour,” the partner joked. “We’ve been doing daily briefings with some of our largest global clients to help them and their real estate teams look at how they can take these ideas and how we can co-create with them.”
Though the concept calls for more space, it doesn’t necessarily mean having an office will be more expensive. If there’s one thing the situation has shown, it’s that remote working is effective — and largely here to stay, said Katsikakis. That means fewer people will be using the same space than before the pandemic.
The way we communicate at work has also changed. The boom in demand for enterprise software, such as Microsoft Teams, has been “unprecedented,” said Jared Spataro, corporate vice president for Microsoft 365.
He said Thursday that the messaging and video conferencing program now has 75 million daily users — up 70% from last month.
“We have a time machine as countries like China and South Korea have returned to work and school, and Teams usage continues to grow,” Spataro told CNN Business.
The way we shop
In some ways, now is the perfect time for brands to pick up new customers and form lasting connections, said Deborah Weinswig, CEO of Coresight Research, an advisory and research firm that focuses on retail and technology.
As millions of people hunker down at home, they’re being forced to create new routines and lifestyles, she noted.
“They always say it takes 21 days to change a habit,” said Weinswig. “We are changing our shopping habits, and some of those will be quite sticky.”
Nike, for instance, has pivoted so well it “could change the curve that [it’s] on for many years to come,” she said. (Coresight has previously worked on research projects for Nike.)
While the company was promoting online shopping prior to the outbreak, Weinswig said that business “really accelerated” in recent months. The sportswear giant reported strong earnings in March, partly because it was quick to accelerate its online business in China. Digital sales in Greater China rose more than 30% last quarter, while weekly active users for its activity apps shot up 80%, CEO John Donahoe told investors.
The company’s flagship app was crucial to its success. The platform launched in China during this period, and encouraged users to work out from home through a virtual “training club,” according to Coresight. Weinswig noted that the app was free, which was “critical” for users.
The company also launched more products online, including limited-edition sneakers such as Air Jordans.
Speed was crucial, too. Nike competes in a crowded space, but it was one of the first brands to pivot to customers staying at home, Weinswig noted.
“They were very early to adapt,” she said.
The way we manage our supply chains
The pandemic may also force a reinvention of the global supply chain.
Generally, supply chains of consumer goods are “designed to prioritize efficiency over flexibility and resilience,” John Knapp, a partner and managing director at Boston Consulting Group, wrote in a recent blog post.
But over the last few months, “shortages of raw materials and critical supplies, together with the specter of increased worker absenteeism, have laid bare the underlying risks,” he noted.
That’s forcing businesses to rethink how they ship or send out their goods.
“Things we used to take for granted don’t exist anymore,” said William Ma, managing director of Kerry Logistics, a Hong Kong-based firm that helps companies around the world manage their supply chains.
“Right now, we can see all these disruptions along almost every segment of moving cargo in and out of China. Or getting into Europe — I can’t get the truck to move across the border.”
Prior to the outbreak, businesses planned for outages of “days,” Ma added. Now, they’re looking at “weeks.”
One firm hoping to save the day is IBM. The tech giant, which offers an AI-based supply chain management program, says it’s seen a “significant” jump in demand as more customers seek out predictive modeling against the next crisis. The company declined to share specific numbers.
The pandemic was “a wake-up call” for many companies, said Benichou, the IBM China chief executive.
“What we want to [do] is clearly help on the issues that we’ve uncovered with the Covid-19. Supply chain optimization, we’ve just uncovered, so we need to treat that.”
Even governments are getting in on the act. Last month, Japan announced a plan to help companies shift their production back home, said Andrew Staples, global editorial director of the Economist Corporate Network. The network is an advisory service of The Economist’s Intelligence Unit, providing resources for senior business leaders.
“I think that will continue,” he said.
The outbreak also exposed cracks in the supply chain that most companies didn’t even know about, according to IBM researchers.
The company recently found that 90% of Fortune 1000 companies had secondary suppliers in Wuhan, the central Chinese city where the outbreak began, but “many had little or no interaction with them,” Jonathan Wright, an IBM executive, said in a company webcast last month.
At the same time, it may be too early for companies to confront this problem, said Ma.
He noted that rebuilding supply chains take significant capital and time — two things most businesses are short on at the moment.
“More important to them is the cash growth. If your things can’t sell, you can’t pay your suppliers, the suppliers cannot pay their vendors,” he said. “[We] just want to get over this ASAP.”
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