Authors: 

_{Professor Hing Kai Chan, Professor of Operations Management, Nottingham University Business School China}

_{Xiaoguang Qi, Lifelong Member, Wolfson College, Cambridge Visiting Professor, China University of Political Science and Law}

_{Fangli Zeng, PhD Candidate, Nottingham University Business School China}

The latest coronavirus outbreak has become a global pandemic (hereafter the pandemic), which means it is now a global affair and as a result, most of the global international trade has stagnated. Although the situation in China has been contained, the spread of the pandemic internationally cannot be underestimated. The impact of the pandemic on supply chains has gone through three stages: suspension of domestic production due to the outbreak in China, the international supply chain breaking down due to the lockdown in China, and the reduction of international demand due to the spread of the pandemic in other countries, which in turn affects supply chain operations in China. Currently, we are gradually moving from the second stage to the third stage. Below, we discuss the impacts of the pandemic on China's supply chains and how companies can respond.

Challenges

1. Impact on Global Supply Chains

The global supply chain has been seriously affected by the pandemic. In the wake of the outbreak, big brands have realised that supply chain risks will considerably increase if a large group of suppliers are clustered in one region. Consequently, foreign buyers may lose confidence in the "Made in China" brand and begin to diversify their global purchasing activities to other countries or regions, rather than excessively concentrating on China. Nevertheless, our view is that there is little chance of moving the industry chain to other countries in a short period of time. China has a very comprehensive industrial chain and moving procurement to other countries with lower labour costs holds many unknown risks. Furthermore, the proportion of Chinese factories that have resumed normal production has already been very high. Production and delivery capacity to a large extent will soon be back to normal. After all, current obstacles are not in production capacity, but the restrictions on international logistics. For example, more than 60 countries or regions have imposed controls on China's ships and some countries have begun to close international logistics channels. These restrictions will become tighter as the pandemic spreads further.

2. Impact on Trade-Oriented Enterprises in China

Though the majority of domestic production-oriented enterprises have resumed their normal business, they are facing order cancellations or the postponement of deliveries from overseas customers. For China, the massive spread of the pandemic in other parts of the world will affect the purchasing plans of overseas customers. Subsequently, many companies in the country are expecting a sharp drop in foreign trade in the coming months. In addition, with the postponement or cancellation of nearly 200 international exhibitions and travel restrictions in many countries, access to customers via these offline channels will also be significantly reduced this year. Provinces which are well known for international trade will face huge challenges, such as Zhejiang, Jiangsu, and Guangdong, etc.

Opportunities

1. Digitisation

Many enterprises have realised the operability and convenience of digital operations during the pandemic. Enterprises now have begun to use a variety of digital office software packages, such as DingTalk, WeChat Work, Cloud Office, ZOOM, and Microsoft Teams, etc. Digital operations may be widely used in the aftermath of the pandemic. Externally, many industries have also adopted several innovative operating models. For example, the catering industry has begun to "share employees" to cope with the increasing demand in the online meal-delivery business, in the face of the dramatic and obvious decrease in offline business during the lockdown period. For instance, the chain restaurant, Xibei, has "rented out" thousands of employees to the online food delivery company Hema. Furthermore, Hema and Sinopec have started to "share stores", such as "sharing" some Sinopec gas stations as Hema "branches". Generally speaking, the current pandemic will motivate many organisations to innovate their daily operations.

2. Transformation to New Business Models

The pandemic may provide an opportunity for some enterprises to transform their business. Industries like healthcare, online education, online retailing have received wide attention during the outbreak. For example, Gree spent a lot of resources on research and development to produce mask making machines and masks themselves in response to the Chinese government’s call.  Gree can, and perhaps has begun to, enter a new market. Apart from large enterprises like Gree, many small and medium-sized enterprises have visualised their opportunities. Many have started investing in and promoting medical products. In addition, the "stay-at-home-economy" has been soaring since the outbreak. Many enterprises have seized the opportunity to upgrade their business models by using online retail channels (e.g. e-commerce, social media, group purchase, TikTok) on top of their existing offline channels.

Conclusion

We are unable to predict how the pandemic will evolve globally. Enterprises should think about how to turn "challenges" into "opportunities". In this regard, we would like to offer a few useful suggestions to enterprises. Firstly, enterprises should understand the support policies offered by the State and local governments, and align with them if suitable. By applying for this support, in combination with the enterprise’s own circumstances, they can get through this difficult period. Secondly, improving the level of digitalization in their operations management can save on operating costs, increase work efficiency and create multiple channels for business. This will help the enterprises make the right decisions quickly and obtain the first-mover advantage. Thirdly, enterprises should develop quick response mechanisms by incorporating the latest information from domestic and foreign sources and national policies.

In conclusion, enterprises should be pro-active in evaluating the possibility of transforming their business during this difficult period. The pandemic is a “war without the smoke of gunpowder” and enterprises will only achieve victory by overcoming these difficulties.