The progression of the coronavirus outbreak was rapid. From being called a ‘flu’ to being declared a pandemic by the World Health Organisation, it is now affecting the economy worldwide.
To have a thorough understanding of the same, McKinsey surveyed during the first week of March to see how the virus is overlooking all of the other threats to the global economies.
The main objective of this research was to generate insight into the short-term as well as the long-term effects of this outbreak on the companies as well as global growth.
Findings from this survey state that multinational companies are revamping their globalization strategies. Private sector respondents added that their companies will be altering their supply chains in the coming years. However, a majority of the respondents of the developing economies foresee a positive outlook for their companies.
Findings
- 86% of the respondents expressed concern that the outbreak will have a substantial impact on the global economic growth in the next year with the virus being the biggest risk to the growth of their organizations.
- The coronavirus outbreak was considered to be of the highest risk to global economic growth, amongst the 16 choices presented in the survey. It displaced trade conflict, which was the most commonly cited risk throughout 2019.
- Coronavirus outbreak became the most commonly cited threat in all regions except Latin America with two- thirds of the respondents expressing that the outbreak is a top risk to growth.
- Fifty- three percent of the respondents expressed concerns over the stunted growth and development of their companies, due to the outbreak.
- As little as six percent of the respondents said that the state of the global economy has become better whereas eighty-five of the respondents said that the state has become worse as compared to the previous period of six months.
- Respondents have become vigilant about the global economy’s prospects with fifty- eight percent stating that they expect conditions to decline in the coming six months, more than twice the share that predicted an improvement.
- From the survey, it was also concluded that respondents in the Asia- Pacific and the developing markets region were most dissatisfied with the current state of their country’s economy.
- Respondents of the developed economies were a lot more pessimistic, they expect their economies’ growth rate to contract in the coming 6 months as compared to the developing economies, expecting an increase in their economies’ growth rate.
- Changes in the globalization strategy would include diversifying supply chains across countries and sourcing more from regional supply chains and would be investing less in moving operations closer to the end consumer.
- Respondents still expect the customer demand and the companies’ profit to increase rather than decrease in the coming months.
Respondents working in the private sector companies stated that the financial crisis is directly proportional to the investment decisions of the companies. This has even affected the attractive investment opportunities that they can fund.
To curb the negative impact of the coronavirus, India’s largest IT service firm Tata Consultancy Services (TCS) has revamped its 20-year-old operating model.
This new operating model named 25/25 will allow 75% of the employees at TCS to work from home till 2025. This will cut down on office space required by the company.
This has completely changed the operating model of the IT firms as only 15-20% of employees used to work from home before this. To maintain the competitive advantage in human capital, MNCs like Wipro and Infosys are likely to follow.
To maintain the quality, TCS even introduced Secure Borderless Work Spaces (SBWS) to its operating model to ensure work allocation, monitoring and reporting to ensure the quality and security of the projects were not compromised.
This model will help TCS be more resilient as the distributed nature of this operating model includes less risk and will be better suited for the continuity of the business.
Marketing spending as a percentage of total revenue tends to fluctuate and is usually between 6.5% to 10% with the highest percentage coming from B2C companies providing services followed by B2B companies providing products.
Marketing budgets did not receive the same drop rate as budgets and revenues show that priority is being given to marketing to retain customers and maintain brand awareness during the pandemic.
30.3% of the marketers reported that they haven’t experienced any changes in the overall marketing budgets during the pandemic.
The CMO survey even reports that the marketers have received a 5% gain in both digital and non-digital marketing budgets, these budgets are expected to return to pre-pandemic levels.
