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View from India: Coronavirus gives digital a push

Image credit: REUTERS/Thomas Peter

The increasing spread of Covid-19 has radically disrupted traditional patterns and networks of economic interaction and behaviour, and, after this crisis, a new normal has to emerge.

By now, it is fairly certain that the current downturn is fundamentally different from the recessions that we have seen in the past. This is not just another turn of the business cycle, but a shake-up of the world economic order. While countries and companies attempt to come to terms with the scale of this pandemic, it is evident that we are staring at more permanent, structural changes in the way we live, work and play.

The collective experience of going through this common crisis will lead to a fundamental re-evaluation of assumptions and priorities, which will be both a challenge and an opportunity.

A report from KPMG, titled ‘Potential impact of Covid-19 on the Indian economy’, has summarised seven ways in which the business landscape could shift, not only in India but also around the world. Leveraging these will certainly help navigate the economically and socially viable path to the new normal.

Firstly, there will be a shift towards localisation; a move triggered by the disruption of the supply chain. This is expected to lead to greater localisation of supply chains, particularly of essential commodities as well as for sectors that are perceived to be strategically important.

Secondly, digital will get a real push. Most companies have opted to work remotely and their employees are now ‘online’ and working from home. While these trends were already in-motion, they have now hit the fast-forward button. Even the most traditional brick and mortar organisations have been forced to experiment with digital channels. This presents a real and immediate opportunity to drive efficiencies through digital media. At the same time, this crisis has highlighted the importance of investment in enabling technologies like cloud, data and cyber security.

This will change the way we work with far-reaching implications on B2B, B2C, B2G services, commercial real estate, e-commerce, e-governance, cyber security, process automation, data analytics and self-service capabilities.

The third trend points to the fact that it’s important to be financially prudent and conserve cash. This situation has proven, once again, that cash is king – companies that are over leveraged and ‘living on the edge’ are the most vulnerable.

A move towards variable cost models will happen as overall business costs will be lowered. For instance, businesses will now determine what they must keep in-house, and explore outsourcing the rest so that fixed costs can be lowered. As with other trends, this fourth outcome will further impact the labour force and how they work, contract manufacturing, and supply chain considerations.

Alternate data can offer quick insights that traditional approaches and tools may not offer. This is especially pertinent for areas where information is scarce or erratic. This offers up challenges surrounding short histories and collection systems, for instance, that are prone to change. Nevertheless, governments and companies have realised the importance of sensing capabilities, building transparency through ‘digital control towers’, ‘digital twins’, and the ability to process both structured and unstructured data.

In one example, analytics companies are now mining alternative data such as traffic jams and food orders to track Covid-19 shock. This trend is expected to pick-up.

The sixth aspect is about individual companies that will want to ensure their supply chains are resilient to remain competitive. Risks to supply chains are numerous and continuously evolving. Hence, it is imperative that resilience capabilities are developed to respond to repercussions of unexpected events. Either they quickly return to original state of business or move to a new and better state after being affected by the risk and continue business operations as efficiently as possible. Achieving this will require initiatives from both internal businesses as well as from the wider network.

Finally, the ongoing pandemic is forcing countries and companies to take quick actions in the absence of perfect data while remaining customer-centric, addressing employee needs and reinforcing stable team dynamics. Going forward, policies will need to evolve faster than the market and policymakers will need to be more responsive, inclusive and agile.

These are all anticipated outcomes. Meanwhile, apex body Confederation of Indian Industry (CII) has been working with the Government of Karnataka (GoK) to complement the efforts undertaken to arrest the spread of coronavirus and address the immediate needs of various industries. The CII report ‘Covid-19’ has suggested interventions for GoK to address the needs of various industries.

With a dip in demand for products, the use of production facilities has reduced. As a result, the stress has been largely on micro, small and medium enterprises (MSMEs). CII has recommended that GoK create a corpus for supporting MSMEs to tide over the crisis for wage payable during the temporary shut-down, cash flow disruptions and working capital requirements. The MSME working capital cycles have been impacted.

As an immediate measure, there has to be clear instructions to all industries (MSME and large industries) as to who will operate and to what extent, and who will not. The CII report indicates that this instruction should come from the government rather than the supply chain entities.

A recommendation is that new start-ups and MSMEs that are less than three years old must be given financial support and a waiver for corporate tax for the current year.

Since Mumbai and Pune industrial belts are closed, the supply of spare parts is as affected as the domestic supply of finished goods. Consumer footfall in showrooms has fallen drastically: in the auto industry, for instance, exports of cars and car components are severely impacted. CII has recommended to the government that it contemplate extending the time schedule of the changing over of BSIV to BSVI until September 2020.

When we look at the IT-ITes sector, companies are being forced to enforce business continuity plans to ensure that they are still running. However, clients are tending to call off projects, which has adversely impacted businesses across the IT spectrum. Impact recommendations point to the fact that essential services must continue. This exception must be made. Companies will make sure that a secure and safe work environment is created but there has to be monetary support for daily wage earners who have lost their job due to the pandemic.

This crisis is a story with an uncertain ending. However, what is clear is Covid-19 has introduced new challenges to the business environment which call for a measured, practical and informed approach from political and business leaders. We also must realise that Covid-19 is likely to lead to a new normal – being aware of and preparing for these shifts will help businesses and economies navigate in the post-Covid-19 world.

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