A trip to China every three months to glean what is the latest in affordable fashion was a routine affair for 1-India Family Mart, a chain of retail stores in India that sells garments and other products. The Chinese market has its finger on the fashion pulse with affordable, mid and top-end clothing and designs. The fashion team of 1-India Family Mart would go scouring the markets for latest designs, fabrics and also dress pieces from shopfloors in China which were extras from orders placed by large fashion houses. These designs were then made and sent to 1-India Family Mart’s manufacturing outlets in India. “The pieces were a hit with our customers,” said JP Shukla, co-founder and CEO.
It has been a happy marriage with Chinese fashion trends transposed on to Indian garments being snapped up by the firm’s customers for mid and low-priced clothes. Shukla recalls how once the team though hesitant, decided to buy torn jeans from China—100 pieces were purchased and the company saw the product being brought off its shelves in a short period. The company then bought 1000 pieces and it was a hit with its clientele.
Now, these incidents seem to be in the past with the coronavirus outbreak in China leading to firms like 1-India Family Mart and others forced to look at other markets. The design team is now headed to other South-East Asian markets but these are not as quick or resourceful in terms of designs, innovation as China is, said Shukla.
About 10 percent of Fortune 1000 companies have a direct supplier (Tier 1) based in China that are already impacted and about 80 percent of all the Fortune 1000 companies have a tier 1 or tier 2 supplier from China which are being impacted as material inventories are depleting. These industries range from automotive components, electronic components and apparel in particular due to production stoppages in quarantine policies. This will have a ripple impact on the production activities of automobile OEM, electronic goods companies, and textile companies across the globe that rely on components/raw materials from Chinese industries. For India, electronic manufacturing and pharmaceutical companies are most at risk as they rely on raw materials coming from China, said a sector expert.
The coronavirus epidemic has wreaked havoc on several sectors in India, be it electronics, metals, IT, textiles, pharma among a slew of others. The impact on Indian companies that has suppliers and buyers in China will vary across sectors depending on the respective import dependency on China, inventory level, capacity for import substitution, search and information costs in alternate markets, etc. China and Hong Kong together constitute 9 percent of India’s export basket and over 17 percent to India’s import basket, according to Dun & Bradstreet.
A global recession is likely if coronavirus becomes a pandemic, and the odds of that are uncomfortably high and rising with infections surging in Italy and Korea, Moody's Analytics said on Wednesday. "The coronavirus has been a body blow to the Chinese economy, which now threatens to take out the entire global economy," Chief Economist at Moody's Analytics Mark Zandi said.
The few odd firms that are finding a surge in business are those that are needed to ward off the dangers of coronavirus spreading. Like face mask and glove makers. Vivek Tiwari, founder, and CEO, Medikabazaar, has seen an over 10x surge in growth since the tragedy struck globally. Not just gloves and face masks, but particulate respiratory masks, protective suits, sterile surgical gloves, safety goggles, etc are in demand to curb the spread of coronavirus. "In the last few weeks, we have received multiple queries from China, Japan, Singapore, and even India and other countries and we have increased our procurement of masks and other items many folds to meet the demand," said Tiwari.
The companies that either have significant sales from Chinese consumers or have suppliers based in China are majorly impacted. Luxury goods specifically and other retail that are heavily impacted as Chinese consumers, even those outside of Wuhan have hunkered down at homes instead of shopping malls. Some industry surveys suggest upwards of $50 billion sales loss in this industry alone. Even after things go back to normal, these companies cant make up for lost sales, said Vijay Kasi, Principal, Kearney, a global management consulting firm. The latest estimates suggest about $1 trillion of global GDP could be wiped out with the current outbreak of coronavirus, he said.
Supply chains of major vendors from China have been severely affected. Although India, Vietnam and Malaysia, among other South East Asian countries have been ramping up manufacturing over the last few years, China continues to remain a major supplier. With the outbreak of coronavirus, there will be a short term supply gap, said Rajan Sharma, Founder & CEO, excess2sell.com
Some firms which have regular meetings held abroad with their global offices are now forced to prune it or avoid holding it in other countries. It is a matter of taking precautions so as to not endanger employees' health. Qlik, a data and analytics firm, is encouraging virtual meetings, for instance. Geoff Thomas, Senior VP, Asia Pacific said, "While no Qlik office closures are planned at this time, we are encouraging virtual meetings," he said.
The electronics sector too has taken a hard blow. China is the global manufacturing hub for most electronic products, raw materials and components. The shutdown in China due to the coronavirus has caused a supply concern across industries. For five years now, Gizmobaba, an online gadget company has been importing over 50 percent of its products from China. The production in China is entirely shut down as a result of the outbreak, said Alok Chawla, CEO, Gizomobaba. However, it currently holds stocks for about another three weeks. It expects things to stabilize by then. "We are planning an airfreight consignment shortly and do not expect much of a slowdown in business. Yet, there will be a slight impact in the costs of products, and even airfreight rates," Chawla said.
The electronic sector has a choice of importing product parts from other South East Asian countries but it is the small, precision parts that China is famous for that makes it difficult for the sector to procure from elsewhere. There is no alternative for China in the product side or the price factor.
Avneet Singh Marwah, Director and CEO, Super Plastronics Pvt Ltd, said that the company imports around 70 percent of its materials from China and though Taiwan, Korea and Vietnam are an alternative given the current epidemic outbreak in China, there isn’t much it can do with regard to the product parts it requires. Marwah predicts the overall business impact of the coronavirus epidemic to lead to around Rs 200 crore loss to the country.
There is a production cut of 40-50 percent across sectors in India. The future of the industry, which is largely dependent on China, seems bleak as of now.
Pharma companies have a high dependency on APIs. Almost 70 percent of the Active Pharmaceutical Ingredient (API), the active ingredient which is contained in medicine, is imported from China. This amounts to $2.4 billion. According to data by the Pharmaceutical Exports Promotion Council of India (Pharmexcil), a body under the Union Ministry of Commerce and Industry, exports of bulk drugs and intermediates in FY19 stood at $3.9 billion, up by 10.5 percent over the previous year.
India imports bulk drugs/active pharmaceutical ingredients (APIs) for producing medicines including certain essential medicines from China. The government has earlier said most of the imports of the bulk drugs and APIs are being done because of economic considerations.
Due to the high dependency of API from China, the Indian pharma manufacturer is already looking at raw material challenges. With the bulk of APIs coming from areas around Hubei and Zhejiang provinces, the situation is grave, said Sanjay Jha, Director, Colmed, Mumbai-based medical supplies company. India is dependent on APIs from China especially for antibiotics, Vitamin C and D. Small manufacturers are going to suffer more since they do not typically have much inventory with low availability of raw materials and price increase affecting them significantly. Larger manufacturers would be able to steer clear of these challenges for a longer period, Jha said, but if coronavirus spreads further and for a longer period, even large manufacturers would face significant challenges, Jha said.
Trivitron Healthcare which is into medical imaging, in-vitro diagnostics, newborn screening, etc, has a significant export business in China. “Some of our exports to China are on hold as there is no one to receive the products in China’s ports,” said Satyaki Banerjee, CEO-Medical Imaging Division, Trivitron Healthcare. The newborn screening products have been the most affected, which is one percent of the company’s turnover, he said.
The coronavirus epidemic that threatens to become a pandemic has left global stock markets, investors and industry shocked and cautious with grave financial implications in its wake. Time then for industries, countries to look at other alternatives even if that is an expensive one.
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Updated Date: Mar 05, 2020 13:22:31 IST