The Impact of COVID-19 on Business
Abstract
The COVID-19 pandemic came as a sudden and unexpected disaster that the whole world did not foresee. Its effects have also surpassed initial expectations as it has evolved into a full-blown pandemic. It has made governments pass policies and measures for individuals to stay at home and avoid public spaces and group gatherings. It has also affected businesses significantly by interfering with production and operation processes, employee productivity, and consumer spending. These interferences have the potential to obliterate a business. Therefore, businesses should strategize on their survival and recovery. There is no accurate prediction on when the pandemic will end, and this necessitates a contingency plan to cater for all possibilities. Businesses should put crisis management plans in place to address the issues that the pandemic brings about. They should also adopt technological approaches to their operations and internal communication. Lastly, if the pandemic has interfered with supply chains, they should identify alternatives to keep the chain going. The management capabilities of business executives will determine whether businesses stay afloat or not.
Keywords: pandemic, COVID-19, strategy, business
The Impact of COVID-19 on Business
Introduction
Businesses usually face several issues within their environment that affect their existence and state. The business cannot control most of these issues, but it can ensure that it is ready to deal with them at all times. COVID-19 is the greatest challenge that the whole world has had to face in 2020. The pandemic has affected the lives of individuals all over the world. Businesses have felt the impact of the virus and are bracing themselves for an unpredictable future. The pandemic’s unpredictability arises from the fact that the virus sprung up without notice, and no one can be certain about when it will completely dissipate. As governments attempt to find a vaccine and cure for the virus, businesses struggle to stay afloat. Businesses face several challenges as economists predict a looming recession that will be one of the worst in history. This paper will analyze the effects of COVID-19 on business while predicting the possible effects that will come up in the coming months. Further, it will provide solutions and possible steps that businesses ought to take in order to remain in operation and have a sustainable existence.
Effects of COVID-19 on Business
Statistical Analysis
Several organizations have engaged in research on the current impact of COVID-19 and likely future trends. The research considers that such occurrences shape how society approached various things, for example, traveling and purchasing trends. One report reveals that within 57 days, the United States government had to ask 95% of its citizens to limit their movement and maintain social distance. The efforts to suppress the virus have led to $3.6 trillion in spending by the government (BMS, 2020). Further, around 32 million individuals have filed for unemployment benefits, and the Gross Domestic Product has declined for the first time in six years. These effects reveal the impact of the virus on the government, which eventually trickles down to individuals and businesses in the form of taxes. The same report indicates that consumer spending has reduced by 7.6%, which is the most substantial reduction since 1980. The value of inventory has also decreased by $29.4 billion. Investment in real estate and equipment by businesses has reduced by 10% and 15%, respectively. Lastly, imports have reduced by 15.3% and exports have reduced by 8.7%.
BBC news has provided a compilation of data from various sources. The data reveals that stock markets have experienced a sharp decline for the first time since 1987 (Palumbo et al., 2020). Oil prices are currently at a negative, getting to a price that has it has never dropped to for almost 20 years. Further, there is a looming recession, with the global economy expected to dip by 3%. Global and domestic travel has also been significantly affected, with most flights canceled. The travel restrictions have affected the airline industry, global trade, and tourism. Lastly, reports indicate that production within predominantly manufacturing countries has decreased. China is a case in point, where most companies usually source raw materials and finished products. The decline affects businesses that source their products globally. On the positive side, there is a marked increase in the use of technology for communication, entertainment, and shopping. The use of Zoom, Netflix, and Amazon has increased, with Amazon experiencing increasing share prices.
Effects of COVID-19
- Decrease in Production
Most companies have reduced production capacity. This reduction directly results from lockdown policies imposed by the government, which means that employees stay at home to reduce contact and manage the virus. For most businesses, this situation has led to the closure of their production processes. Another reason for the decrease in production is the lack of raw materials. Research indicates that China’s production levels have plummeted. The result is that companies that usually source raw materials from China do not have access to an essential factor of production. Therefore, COVID-19 has substantially affected the production process.
- Decrease in Turnover
Company sales have reduced significantly. This reduction has taken place because consumers have limited their spending as a way of exercising caution. Most consumers are aware of the unpredictability of the current situation. They opt to limit their spending to only what they need to save money for the uncertain future. Further, most companies have laid off employees, which reduces their consumption power. Unemployment deprives consumers of the finances necessary for spending. As a result, turnover has reduced, which in turn reduces the revenue of the businesses and their overall profitability.
- Layoffs and Pay Cuts
The current economic state has prompted businesses to lay off their employees and reduce their salaries in other cases. The reduced revenue and redundancy caused by mandatory stay-at-home policies necessitate these changes in employment. If employees are unable to work from home or their employment necessitates physical presence at the workplace, staying at home renders them redundant. Further, businesses cannot afford to pay all their employees with a reduction in revenue caused by reduced production and consumer spending. The layoffs affect the businesses since they will have to restart the recruitment process if they survive the pandemic. It also affects their existence since human resources are one of the most integral parts of a business entity.
- Possible Tax Hikes
Government spending on pandemic interventions, research on vaccines, and cures will continually increase. This spending will necessitate an increase in taxes to supplement the government’s budget. Businesses will be taxed more than they currently are, which will lead to a significant reduction in profit. Value Added Tax is usually the primary target for tax hikes because it has the highest returns. The increase means that the prices of goods will increase since consumers usually bear the VAT burden. With the current reduction in spending capacity, an increase in VAT, and a corresponding increase in the prices of goods will deter consumers from purchasing products. Further, if the government increases corporation tax rates, businesses will struggle to stay afloat since the government will take a considerable chunk of their profits as tax.
Strategies for Recovery
Crisis Management Plan
Businesses need to strategize on how the way forward and make short-term and long-term plans. It is essential to analyze the current status of the business and its possible survival after the pandemic. Different industries have had different experiences during the pandemic. For example, retail stores have experienced a boost in sales while restaurants are under imminent threat of closure. Therefore, there is no blanket approach for all businesses. Each business must assess its state and the status of the industry. It can then decide on the way forward, considering the pandemic ending in the year or extending to next year. The business should draft a plan that includes cost-cutting measures. There is a need for businesses to minimize their spending and limit it to the necessary expenditure. Further, businesses should look out for government incentives and take advantage of them, for example, the small business loans issued by the government. They should also evaluate their insurance policies, if they have them, to determine whether the policies cover business interruption.
Adoption of Technology
Businesses should adopt technology to the most considerable extent possible. Most businesses that have incorporated technology in different stages of their operations have a competitive advantage over those that have not. A case in point is Amazon, which has had a boost in sales because it provides an option for consumers to purchase commodities from the comfort of their homes and have them delivered to their doorsteps. Consumers are interested in such services because they enable them to obtain the products that they need without risking their health. Further, most businesses have adopted Zoom for virtual meetings. Communication is essential in business as it enhances the coordination of activities and creates mutual understanding among employees and management. If the business can provide its products and services through an online platform, it should take advantage of technology to boost revenue. This season is also a perfect time for businesses to try out technology as a long-term strategy.
Identifying Alternative Supply Chain Possibilities
The supply chain may be interrupted by a lack of options for global sourcing of products and raw materials. Usually, global sourcing is adopted because it is cheaper than locally produced goods. However, with the current immobility and closure of global markets, businesses will have to identify alternative sources of the raw materials and products in order to ensure that they remain in operation. The production process should stop merely because raw materials are unavailable. Businesses can identify options available locally that produce the same raw materials at relatively low prices. This step is crucial since it will ensure that the current crisis does not interrupt the supply chain, and the business remains in operation.
Conclusion
The COVID-19 pandemic has brought with it a myriad of problems that affect business performance and sustainability. It has interfered with business production and operations, consumer spending, and employee productivity. Further, it has created the possibility of tax hikes and the risk of economic recession. With a looming economic recession, businesses must take action and put strategies in place to ensure that they stay afloat and recover immediately after the pandemic clears out. They should adopt technology for both communications and operations since technology has proven benefits during these times. They should also have crisis management plans to ensure that they preempt possibilities and have a plan to handle the disaster in the most efficient manner. It is also crucial for businesses to reduce unnecessary costs in order to avoid falling into debt. The only spending allowed should be reasonable and extremely necessary. Businesses should also weigh their options in terms of supplies to ensure that the crisis does not meddle with the supply chain. The pandemic presents a test for businesses to measure their sustainability and an opportunity to adopt more efficient strategies. Businesses should take strategic measures to survive the pandemic and eventually increase post-COVID-19 profitability, however radical they may have to be.
References
BMS. (2020, May 11). COVID-19 Impact Analysis Summary. Retrieved May 15, 2020, from https://www.bmsgroup.com/news/covid-19-impact-analysis-summary
Palumbo, L., Jones, D., & Brown, D. (2020, April 30). Coronavirus: A Visual Guide to the Economic Impact. BBC News. Retrieved May 15, 2020, from https://www.bbc.com/news/business-51706225