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It’s business unusual, thanks to Covid-19

Team BusinessLine | Updated on April 03, 2020 Published on April 03, 2020

Read the signs: The compression of consumer demand is impacting retail sales of everything from automobiles to consumer appliances   -  ISTOCK.COM

A survey of the business landscape as companies struggle to cope with the lockdown and figure out ways to derisk themselves for the road ahead

In the face of an apocalyptic outbreak of the Covid-19 pandemic, businesses across India, and indeed the rest of the world, are struggling to stay afloat. Although downturns are part of every business cycle, the challenge this time has been unique: Not only have supply chains been disrupted, but consumer demand has diminished alarmingly. How are businesses coping with the lockdown, and how are they looking to derisk themselves whenever they come out of this? A survey of the business landscape, across sectors.

IT sector: Resilient

Arguably the one sector that has been the most nimble in responding to the hugely disruptive lockdown is the IT industry, which accounts for ₹1.2-lakh crore in aggregate export revenues. Even two days before the lockdown was enforced, Hyderabad-based ValueMomentum had implemented a work-from-home (WFH) protocol for its 2,300 employees in India. It set up a task force, equipped its employees with the systems needed to work uninterrupted from home, and migrated to virtual meetings. “We even conducted drills before we got our employees to work from home,” says Ravi S Rao, managing director and location head of ValueMomentum. The quick switchover ensured that its clients faced no disruptions, he adds.

Likewise, most IT and IT-enabled services companies — both multinationals and domestic — transitioned reasonably smoothly. Within four days, about 95 per cent of the companies migrated to working from home, says Hyderabad Software Exporters’ Association president Murali Bollu.

One of India’s leading IT services companies, Infosys, with 2.4 lakh employees, invoked its Business Continuity Management System, which is tailored to tide over just such a potentially work-disrupting contingency. While implementing WFH protocols, it sensitised employees to the compulsions of client confidentiality, data privacy and cyber threats, and implemented information security controls for remote working and activity monitoring.

To address the sense of isolation that employees may face, Infosys ensured they get access to counselling services; additionally, teams are encouraged to take “virtual breaks” geared to enhance the sense of camaraderie.

Looking beyond the current Covid-19-induced disruption, the $12.4-billion IT services giant is embracing a new reality where remote working could become the ‘new normal’. Infosys president Ravi Kumar S outlines this vision of ‘tomorrow’s workplace’, noting that “remote working at scale is non-negotiable today and will become the norm tomorrow.”

In the post-coronavirus economy, he adds, companies will “rewire their operating models” and build greater flexibility into their workplaces and policies to “create the landscapes in which technology can also boost enterprise productivity”.

Such a post-coronavirus economy, Kumar reckons, will be characterised by always-available telecom infrastructure and accelerated adoption of 5G. “It will bring with it solutions to evolve our workforces and workplaces to embrace a more digital culture by enabling our people to virtually connect, collaborate and build new digital skills around new ways of working.”

Delivering such a digital transformation is at the core of what IT consulting firm Mindtree, with its India headquarters at Bengaluru, does, and the company has been proactive in facilitating WFH. Paneesh Rao, chief people officer, says the company had achieved a “seamless and collaborative work environment” using tools such as Microsoft Teams, while also ensuring that data security measures are in place.

Looking ahead, Rao expects a return to ‘business as usual’ and “greater emphasis by the industry on efficient use of technology to maintain business continuity”.

Manufacturing: Stalled engines

The impact of the lockdown has predictably been harsh on the manufacturing sector, given the supply-chain disruptions wrought all around the world. And since manufacturers continue to depend excessively on supply chains in China, the pinch has been rather more pronounced. Somewhat uniquely, this time around, the supply shock has been compounded by a collapse of consumer demand, and businesses across the board — be they big, medium or small — and even start-ups have been severely impacted by the total clampdown on the movement of people and goods and the shutdown of many ancillary services.

Abhijeet Makhijani, CEO and MD of Lsquare Eco-products Pvt Ltd, which manufactures eco-friendly packaging materials for original equipment manufacturers (OEMs), at its factories in Bengaluru, Pune and Mohali, says, “A lot of equipment that was being imported for the new factory at Mohali is on hold now, and if inter-state movement is not allowed after the 21-day lockdown ends, we will face problems sourcing raw materials too.”

In India, the supply chain in the electronics manufacturing ecosystem is facing the brunt of a shortage of products, and warehouse inventories have been depleted, points out Chandrahas Panigrahi, CMO and consumer business head, Acer India. However, he adds, Acer is looking to resume its shipments from China as soon as that country opens for business.

Fuji Electric India, an arm of Japan-based power major Fuji Electric, experienced a 45-day disruption in its China supplies, but has since ramped up production, says MD Sriram Ramakrishnan. The company’s factories in Japan and Thailand are functioning, but all its suppliers in India are closed and business is on hold, he adds.

Both Fuji Electric and Acer India have harnessed digital technology to get their employees to work from home.

Auto components: Stand at unease

For the automotive industry and component manufacturers, the lockdown is the latest in a line of body blows. The auto component sector, which contributes 2.3 per cent to India’s GDP and 25 per cent to Manufacturing GDP, employs over 50 lakh people. Today, it is, by some estimates, facing production loss of ₹1,000 – 1,200 crore per day. The sector exports to almost all of the world’s leading vehicle manufacturers, which speaks of its strong capabilities and global competitiveness. The industry is dominated by small and medium enterprises (SMEs), and is one of the key drivers of India’s economic growth and the Make in India programme.

Deepak Jain, president, Automotive Component Manufacturers Association (ACMA), whose 800 manufacturer-members account for more than 90 per cent of the auto component industry’s turnover in the organised sector, notes that the complete stoppage of production and scarcity of working capital has rendered the industry’s plight fairly acute.

With the lockdown, production has come to a standstill in the automotive industry across the country, adds Vinnie Mehta, director general of the Automotive Component Manufacturers Association of India. Component manufacturers are facing severe cash-flow constraints. If this is not immediately addressed, it may lead to insolvency of several companies, he warns.

The current societal focus is on getting essential supplies to locked-in consumers, but as systems stabilise, more bandwidth can be added to the supply chains, believes Sunil Rallan, chairman and managing director, J Matadee Free Trade Zone, a warehousing company based in Chennai. For the future, Rallan suggests a de-risking strategy that encompasses diversification, automation and digitalisation.

Every crisis presents an opportunity, and Makhijani reasons that this might be the perfect time for India to seize the opportunity to become a global manufacturing powerhouse. For that, however, “the country needs reforms that are manufacturing-friendly and which improve the ease of doing business”.

Retail sales/services: Down and out

Ashish Kale, president, Federation of Automobile Dealers’ Associations (FADA), the apex dealers’ body which represents over 26,000 dealerships in the country, senses a mood of excessive caution among consumers. “Customers are worried about their safety, and in such times they opt out of high-value purchases. The shutdowns (of non-essential businesses in many states) have only compounded this,” he says.

Appliances manufacturers are being squeezed at both ends, and, in particular, by the dampened consumer sentiment. Kamal Nandi, business head and executive vice-president, Godrej Appliances, notes that summer is a crucial period for the appliances industry: The months from February to June typically account for about 60 per cent of the total turnover. But because of the lockdown, sales plunged 55 per cent in March. April figures, too, will be impacted, he fears.

B Thiagarajan, managing director, Blue Star Ltd, says that the shutdowns will effectively have robbed the AC industry of a month’s sales, but the company is for now not focussing on cost cuts. Beyond the short term, he reasons that consumer sentiments may be impacted by an economic downturn, although, in his estimation, the Indian economy will rebound a lot sooner than the rest of the world. He cites the reopening of factories in some parts of China to say the turnaround will happen soon in India too.

Travel trade: Grounded

Grounded: The travel and tourism industry across the world has come to a freeze   -  ISTOCK.COM

 

The pandemic has frozen the travel and tourism industry. Varesh Chopra, regional director, India, South Asia & Middle East, Cosmos Vacations, a travel tour operator that is part of the Globus family of brands, says that the overall booking portfolio has dipped by about 35 per cent so far this year. “We have implemented short-term cost-cutting measures, but that will not impact our continued service delivery when we put all this behind us,” he adds.

He points out that since the company started in 1928, the sector has witnessed many major challenges. “And although the pandemic is somewhat unique, it is not an insurmountable problem, and things will turn around in a few months.”

Jitul Mehta, founder of VP Travels, is a lot more downcast. The company, which was founded in 1996, has no bookings at all — as against the 100 bookings it would record every day before the pandemic. Similarly, Sunil Gupta, director at Travel Bureau, Agra, says that his company has lost business worth ₹3 crore, and is struggling to stay afloat.

Food retail: Closed for lunch

Restaurants and the food retail business have been severely impacted by the pandemic and the lockdown measures. Sagar Daryani, founder of Wow! Momo and Wow! China, which have 345 operating outlets across the country, says that although the situation is “pretty bad”, he is looking at the “silver lining” and hanging in there. “For now, we have about 60 outlets operational, but only for deliveries,” he adds. “Business-wise, we are doing only one-tenth of what we normally do.”

From about 7,500 transactions per day, the company is down to about 1,500 transactions online. “All of us in the organisation are keeping our expenses down. The marketing budgets have been slashed: We have pulled out of all major inventories in digital and social communication platforms,” Daryani says.

Thomas Fenn, partner at MahaBelly, a Delhi-based Kerala cuisine restaurant founded in 2015, has a similar tale of woe. “Restaurant sales started dwindling towards the end of February and came to a complete standstill with the announcement of the lockdown. There was also a lot of confusion regarding permissions (such as curfew passes) to operate deliveries in the immediate aftermath of the announcement.”

Given these challenges, the company has had to down shutters. “Despite adhering to excellent hygiene protocols, we have decided to suspend operations in the face of increasing risk of exposure. Backend supply chains are also a mess,” Fenn says.

The prospect of big losses looms, added Fenn. “On an individual business level, there isn’t much we can do other than wait and see how this plays out for us. We are staring at the very real possibility of immense financial and job losses in the immediate future if the other stakeholders do not assist us.”

Agriculture: Bitter harvest

As with the manufacturing and services sectors, the farm sector in Telangana, too, is facing one of its sternest challenges, at a time when it’s close to the end of the rabi season, with 1 crore tonnes of output at stake. This is the time when farm labourers are needed to harvest paddy, maize and chillies, and trucks are needed to carry the produce to markets, but the shutdown has interfered with that.

Although the Telangana government has promised to buy the entire rabi produce in a staggered manner, farmers are distraught. “Getting harvesters, operators, labourers, and vehicles to fetch them from other villages and trucks to carry the produce will be difficult as restrictions are in force. The government did exempt agriculture from these restrictions, but on the ground it is difficult to get labourers,” Bojja Dasarath Rami Reddy, secretary-general of the Consortium of Indian Farmers’ Associations (CIFA), says.

The worst-hit may be farmers who are growing mangoes, chillies and other horticultural crops, given their perishable nature. With the supply chain cut off, particularly the inter-district and inter-state movement of vehicles, mango farmers will likely lose a whole season.

The poultry and dairy sectors, too, face challenges in business continuity. While the poultry sector has witnessed a sharp decline in prices after rumours of Covid-19 transmission via chicken and meat, the dairy sector was impacted by a fall in supplies and the unravelling of distribution channels.

“We had to cull lakhs of broiler birds last week as prices plummeted as low as ₹20 a kg of chicken and under ₹2 an egg,” G Ranjit Reddy, president of the Poultry Breeders Association (Telangana), says.

Chicken farmers and mandis elsewhere have similarly been affected by the breakdown of the supply chain. Nishanth Chandran, founder and CEO of TenderCuts, a Chennai-based tech-driven omnichannel fresh meat and seafood company, says that inter-city movement of essentials was affected by the numerous checkpoints. Although the police and health safety officials have been taking necessary steps to resolve the situation, the lockdown has led to loss of perishables, he adds.

Looking ahead

The old order changeth: As a business challenge, the Covid-19 crisis has been unique   -  REUTERS/NAVESH CHITRAKAR

 

Brand and business strategy consultant Harish Bijoor reckons that in a post-Covid-19 world, businesses will be catalysed to adopt “digitalism” in a big way, be it in manufacturing or services businesses.

Robots will be used for high-end manufacturing of machine parts, lathes or high-precision equipment. However, human manpower will still be required — for instance, in the production of biscuits, given the economics of the industry. Also, customer-facing businesses, including restaurants, will morph into phygital (physical + digital) businesses and rely more on takeaways and home deliveries. They can go on to provide experiential dining at customer homes; along with food, restaurants will provide crockery, tableware — and a waiter, he adds.

Serial entrepreneur K Ganesh says start-up entrepreneurs have no option but to hunker down, cut back on discretionary activities, reduce the cash burn rate, and plan a product pipeline for the ‘new normal’ that is to come. Beyond this, start-ups must factor in risk-mitigation contingency planning. Businesses that offer a single product or a single proposition will be more vulnerable than before, he reasons.

According to Ganesh, some players will gain exponentially in the post-Covid-19 world. Indicatively, online education, home healthcare/telemedicine, health and wellness, nutrition, personal hygiene and care products, and online grocers will benefit.

With contributions from K Giriprakash and Sangeetha Chengappa in Bengaluru; Nandana James and Forum Gandhi in Mumbai; G Balachandran in Chennai; and KV Kurmanath in Hyderabad

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Published on April 03, 2020
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