18 Feb 2020
Posted in Business Fundamentals
Coronavirus outbreak: businesses likely to see China as a key risk factor, says GlobalData
The outbreak of Coronavirus has far-reaching impacts ranging from the shutdown of factories, challenging job conditions and supply chain disruption. With these impacts, more businesses with exposure to China are likely to see the country as a potential risk factor, says GlobalData, a leading data and analytics company.
GlobalData’s Company Filing Analytics platform, which scans through earning transcripts and filing documents, finds that China was mentioned as a key risk in 2019 by around 1,500 companies that either have manufacturing bases in the country or are dependent on Chinese supplies. Many of these companies were in the technology, media and telecom (TMT) sector, as China is a key electronics manufacturer. Other sectors that considered China as a potential risk factor included pharmaceuticals, healthcare and medical equipment; consumer packaged goods (CPG) and retail; financial services; construction; and automotive.
Companies across industries and boundaries have been showcasing concerns over the situation in earnings transcripts. Of all the companies with earnings transcripts released between 1st January 2020 to 7th February 2020, 30% mention the coronavirus.
Aurojyoti Bose, Lead Analyst at GlobalData, says: “The impact of Coronavirus is no longer confined to China or any specific industry, with the outbreak threatening supply chain disruption for businesses across industries and boundaries. China’s role in the global supply chain is critical, and original equipment manufacturers (OEMs) across all sectors and countries have already started feeling the pinch from shortage of parts/raw materials.
“As the lockdowns in China have prevented workers from going to work, manufacturing and supply chain disruptions have been forcing companies in other countries to halt production.”
TMT and automotive industries are among the worst affected due to the supply chain crunch. For example, technology giant Apple’s Wuhan supply chain was affected, and the company has stepped up its efforts to find alternate solutions to mitigate the production loss. With factories still struggling to get back to production, there is a large cloud over Apple’s productivity.
Several automakers were also affected due to the supply chain disruption. For instance, Hyundai Motor Co. was forced to announce a temporary halt in production at its plants in South Korea due to its inability to procure parts from China. Other auto companies such as Volkswagen, BMW, Honda, Ford, Daimler, Tesla, and Toyota also suspended operations in Chinese plants.
Adding to the plight, aerospace companies such as Airbus also had to shutdown plants in China due to instructions from Chinese authorities.
For a country already plagued by economy slowdown, the shutdown slashing job growth poses new risk. The job situation has also worsened with the number of postings and active jobs showing a declining trend since the outbreak. On 11 February 2020, the Chinese Ministry of education warned of tough job conditions due to coronavirus outbreak and economy slowdown.
Aurojyoti Bose, Lead Analyst at GlobalData, continues: “Pressure has been mounting to start production at China factories. However, it is a sign of relief that renowned companies such as JD.com and Alibaba are coming forward to hire displaced workers.
“Though it is too early to predict the outcome and how the situation will unfold, a prolonged lockdown is likely to further worsen the situation and business repercussions.”