The COVID-19 pandemic has resulted in mega economic and socio-cultural effects, leading to the Great Lockdown recession. The peculiarity of this Global Lockdown is that both advanced and emerging market economies will be in recession in 2020. However, with every cloud there is a silver lining!
According to the IMF Blog article entitled, “The Great Lockdown through a Global Lens,” many nations are now in the second phase, as they cautiously reopen their economies, but with risks of second waves of infections and re-imposition of lockdowns. The world economy is on a tightrope. The main hurdle would be to ensure an intricate balance between life and livelihoods.
The Organization for Economic Cooperation and Development in its June 2020 Economic Outlook presented two scenarios — one where the pandemic continues to recede, and another where a second wave of rapid contagion erupts later in 2020, with both scenarios equally probable.
The global outlook is highly uncertain. This pandemic has confounded us with a VUCA {volatility, uncertainty, complexity & ambiguous} challenge, which can only be surmounted by an incisive, strategic agility. The last phase of this recession would be when there is a medical solution to the pandemic and countries finally escape the lockdown.
Ramifications on the Global Economy:
The referenced article noted that the contraction in services has been larger than in manufacturing, with the exception of Sweden and Taiwan Province of China, which adopted a different approach to the health crisis. This entailed limited government containment measures, leading to a proportionately smaller hit to services vis-à-vis manufacturing.
It further stated that with pent-up consumer demand there might be a quicker rebound, but this is not guaranteed as consumers may change spending behavior to minimize social interaction, and uncertainty could lead households to save more.
In China, one of the early exiters from the lockdown, the recovery of the services sector lags manufacturing as such services as hospitality and travel struggle to regain demand. Of particular concern is the long-term impact on economies that rely significantly on such services—for example, tourism-dependent economies.
The author further observed that there is a striking divergence of financial markets from the real economy, with financial indicators pointing to stronger prospects of a recovery than real activity suggests. Despite the recent correction, the S&P 500 has recouped most of its losses since the start of the crisis; the FTSE emerging market index and Africa index are substantially improved; the Bovespa rose significantly despite the recent surge in infection rates in Brazil; and portfolio flows to emerging and developing economies have stabilized.
This divergence may portend greater volatility in financial markets. One likely factor behind this divergence is the stronger policy response during this crisis. However, there remains profound uncertainty about the path of the recovery.
Shift towards a Digital Economy:
Globalization is broadly referred to as the increasingly free flow of goods, services, financial capital and labor across national borders. From the year 2009, we entered a new, digital-driven era of globalization which the World Economic Forum aptly described as “Globalization 4.0.” The world will be dominated by two global powers, the US and China. There will be an accelerated shift towards a digital world.
Buoyed by the health guidelines to curb COVID-19, new business models that harness technology will continue to evolve across all sectors of the global economy. There will be a shift towards teleworking, online learning, telemedicine, online commerce, contact free economy, cashless transactions and 3D printing. It is further enabled by artificial intelligence (AI), but threatened by cross-border hacking and cyber-attacks.
Indeed, technology is intricately intertwined with globalization, and will ceaselessly evolve. To thrive in this era and beyond, organizations will have to consistently and continuously innovate on their business models. Customer success will be viewed differently – it will now be a fusion of technology, safety and hygiene. Companies will henceforth differentiate themselves by being brands of health, safety and hygiene.
The Boston Consulting Group advocates for modeling by using digital twins to conquer the complexity in supply chains. Digital twins help companies to simulate all assets and interconnections in a complex supply chain, using advanced analytics and AI, thereby replacing crisis management with mitigation actions.
Digital twins facilitate scenario planning, by ensuring that a company makes decisions on the basis of business needs (for example, balancing service levels with inventory needs and costs) rather than merely resolving issues as they arise. By allowing human decision makers to augment their experience and judgment with data-driven, forward-looking insights, digital twins help realize the vision of the “bionic company.” This is how the company of the future will look like!
COVID-19 related Strategies that will spur Globalization 4.0:
The online ecosystem has taken preeminence due to the fact that customers are aligning their purchase patterns with the health guidelines of wearing masks, physical distancing, essential travel and association. By and large, there has been mixed signals in the global economy, due to the change in consumer habits.
Forward-looking industries need to be agile and continuously reinvent themselves. They need to shrug off the dinosaur mindset and inculcate a disruptive DNA in their modus operandi, as they innovate for change. It is of paramount importance that they operate efficiently by making sure that their value chains are optimized and by adoption of horizontal and vertical integration business strategies.
As the international lockdown cautiously eases, there may yet be hope for economic recovery on the horizon. However, there is bound to be competitive aggressiveness and product diversification as has never been seen before, so as to make up for the downtime! There will be a vibrant online foray that will increasingly play out to win the hearts of the nascent, netizen constituency. Organizations with the best foot forward, will certainly carry the day and smile all the way to the bank!
It is worth noting that corporates should consistently deconstruct and reconstruct their customer value propositions so as to stay ahead of the pack, in their respective market segments. It would be incumbent upon all firms to always revalidate their business models.
There is need for robust scenario planning to ensure that these business models are relevant for today, and yet fairly futuristic with inbuilt risk mitigation measures for the occurrence of a black swan event. In going forward, globalized entities without an e-commerce platform at a bare minimum, will have no impact especially with the upwardly mobile, tech savvy Millennials and Gen Z.
Redundancy trumps efficiency! According to Quy Huy, INSEAD Professor of Strategic Management, we should aim for survivability and resilience before economic efficiency. It would be needless to talk about an efficient dead organization.
He proposed that firms will have to be much more strategic in choosing which alliances are essential, and which are transactional. Rather than “What’s in it for me?” the first question ought to be “What if?” It may be necessary to forego some of the most lucrative partnerships in favour of those that can withstand a missed shipment or delayed payment here or there when fate intervenes.
In conclusion, this pandemic has been debilitating and reawakening in equal measure. It has laid bare the soft underbelly of organizations that did not have robust ICT frameworks, as an integral element of their businesses. ICT plays and will continue to play a pivotal role in business resilience planning, and all right thinking organizations should optimize on this technology renaissance.
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