Adjusting the sails to tide over COVID-19
Analysis by Gualberto Gualtieri, Chief Executive Officer of C & E Limited.
The COVID-19 pandemic has hit us and hit us hard. The sheer pace of change and its exponential impact has caught us off guard. It’s clear that when we restart, and it will happen slowly, we will live in a completely different world.
Day by day, the economy continues to splutter and fall and companies are bleeding through their pockets — a deep recession is inevitable. However, as businessmen, we think that it is important to answer a fundamental question — which economic model will emerge after this subsides — Hayek or Keynes?
In times of war, we think that its important to apply Keynes’ theories which have endured many such rollercoasters.
Faced with unforeseen circumstances, a change of mindset is as necessary in this crisis as it would be in times of war. The shock we are facing is not cyclical. The loss of income is not the fault of any of those who suffer from it. The cost of hesitation may be irreversible. (1$ spent today could cost 5$ tomorrow, someone has estimated) The memory of the sufferings of Europeans in the 1920s was enough of a cautionary tale.
An expert economist, Mr. Draghi (former president of the BCE) and Noriel Roubini are of the opinion that
“Higher public debt levels will become an economic feature and be accompanied by private debt cancellation. Unemployment subsidies and postponement of taxes are important steps, but protecting employment and productive capacity at a time of dramatic income loss require immediate liquidity support…”
We would like to believe that in the world, players will be able to put their efforts in this direction. At this moment we need States’ strong support in their competence sectors such as health, education, and safety. We strongly hope that the G20, that in recent history has accustomed us to endless discussions, will be able to prepare a kind of new Brenton Woods focused on fundamental population guarantees through a new journey based on reforms and a new political phase that unfortunately was not started as well after the 2008 financial collapse.
The two crises are profoundly different, in the sense that 2008 was a crisis generated by wild speculation without rules, COVID19 is a health crisis and needs to be resolved in the context of holiness.
It’s also true that we can emphasize that apparently, the worldwide production shutdown shows to the world that after solving the health issue the other necessary priority is to come back to the real economy, and it will be a piece of good news. Last but not least we must consider that the pandemic is also a test to regulate the primacy of world economic supremacy between China and the USA. Now said that the question is — what can we do?
Hedging our planning for the aftermath
It’s really difficult for this continuous change of situations to make provisions. But we can try to design some possible scenarios.
- No effective interventions by the state. Long term recession.
This will be the worst option. In this unfortunate case, the only possible choice is to minimize both production, employees and workers. We are optimists and don’t want to take this option.
- Interventions by the states with a partial recession, loss of income, loss of GDP.
According to us, this is the more realistic scenario and in this case, it is not certain that in the leather and shoe sector the contraction will be very high. Our models indicate a negative picture with a contraction of volume of around 30%. However, it depends on the emotions of the populace when this pandemic meets its end. By this we mean, the willingness of society to fight and come back with a bang. As higher this sentiment will be, considering that we’re a direct link to a “non-essential” sector, the lesser will be our impact.
But it’s clear that in the next few months the worldwide GDP will be under great stress. In area Euro and the USA, the contraction of GDP in the near period will be around 10% and we will not see a positive signal before June. For the leather industry, we will assume a negative impact of around 6% in those areas.
We will prepare and our chances will come.
Well, how can we face this negativity? How can we best prepared at the reopening? What kind of actions and analysis can we put on during this shutdown? Which kind of smart work?
We think, that the following summarizes the way we are planning our manufacturing:
- Take care of workers and employees that in this COVID-19 pandemic are the most vulnerable.
- The top management needs to open a frank discussion with worldwide agencies — clients and suppliers putting on the fact that interrupting the financial flow is one of the worst things that we can do. It’s absolutely clear that from the bad situation in which we are present, no one will come out alone and we need the help of all with great coordination.
- Ask the managers to involve their team to make several analyses on the past performance. This includes production, product category and selling performance. The focus will be the ‘Toyota Method’ of getting ideas and thoughts from everyone involved in the company to assess our preparedness for the future. What is missing? What else can we be doing?
- This is a golden chance for the R&D team to study areas of emerging importance through research in online libraries. They can get in touch with the area managers and can deepen the discussion on what we must have.
- Analyze what it is necessary to be ready, in terms of flow chart and production schedule, for the reopening. In particular, take care of a program to reorganize the production departments with schemes that permit the whole factory to work safety avoiding future problems of contagion.
Our only focus right now is to be able to get up and get back when this is over. And to quote Tom Hanks in ‘Cast Away’ —
I know what I have to do now, I’ve got to keep breathing because tomorrow the sun will rise. Who knows what the tide could bring?
