Covid-19: Canadian businesses hit-hard and global supply chains put to the test
A new survey of Canadian businesses shows how dramatically the Canadian economy changed in March as a result of Covid-19. Statistics Canada and the Canadian Chamber of Commerce collaborated on the survey to highlight the profound impact the pandemic is having on the ability of businesses in Canada to operate.
From April 3 to 24, 2020, representatives from more than 12,600 businesses visited Statistics Canada’s website and took part in the online questionnaire about how Covid-19 is affecting their business.
Key findings of the survey include:
- Over half (50%) of all businesses see a decline of 20% or more in revenue, with one-third (32.3%) of businesses who responded to the survey reported that their revenues from the first quarter of 2020 were down by 40% or more from the same quarter a year earlier.
- Just under two-thirds (64.8%) of businesses reported being highly affected by lower demand for their products or services, while nearly half (48.5%) of businesses reported being highly affected by the need to cancel services they offered.
- Almost two-fifths (38.1%) of businesses reduced staff hours or shifts, while two-fifths (40.5%) of businesses reported that they laid off staff. Teleworking and working remotely have become more prevalent since the start of the crisis. Nearly half (47.9%) of businesses reported 10% or more of their workforce was teleworking or working remotely on March 31, 2020.
- Over two-fifths (45.4%) of businesses reported having added new ways to interact with or sell to customers, while nearly two-fifths (38.1%) of businesses reported having increased the use of virtual connections internally.
- Over one-quarter (28.6%) of businesses requested credit from financial institutions to cover operating costs due to revenue shortfalls caused by Covid-19. Financial institutions either fully or partially approved over three-quarters (77.3%) of these requests.
See the full survey here.
Analysts and economists alike predict the Canadian economy will experience its deepest recession on record and will only recover modestly over the coming year, a Reuters poll of economists showed. In the April 23-28 Reuters poll of 25 economists Canada’s economy was predicted to have contracted at an annualized rate of 9.8% last quarter and to shrink 37.5% this quarter.
Global economy impacts uncertain
While there is no way predict exactly what the economic fallout from the Covid-19 pandemic will be, there is widespread agreement among economists that it will have severe negative impacts on the global economy.
The U.S. economy contracted in the first quarter at its sharpest pace since the Great Recession as measures to slow the spread of coronavirus almost shut down the country, ending the longest expansion in the nation’s history, Reuters reports. Gross domestic product declined at a 4.8% annualized rate last quarter, as households cut back on purchases while businesses further tightened their purse strings and liquidated inventory.
China’s earliest official data for April showed the domestic economy continued its recovery from March, but with other parts of the world still on lockdown, weak demand from overseas negatively impacted exports. Industrial production in China has fallen by 13.5% in January and February combined, compared with the previous year. With manufacturers operating at reduced capacity, ocean carriers began to blank sailings as a result of the decreased demand.
Unsurprisingly, the Eurozone economy contracted by 3.8% in the first quarter, compared to the last three months of 2019, as the Covid-19 pandemic severely impacted business activity in the region. Both France and Italy are reported as falling into recession, as the latest GDP reports showed both countries had been badly hit by lockdown measures to combat Covid-19. ECB president Christine Lagarde warned that there is worse to come, fearing Eurozone GDP could contract by 15% in the current quarter.
Measures taken by companies to navigate the uncertainties
Just as global economies ramp-up measures to cushion against a record economic downturn caused by the Covid-19 lockdowns, so too will businesses need to take action.
A study by Inverto, the procurement and supply chain management consultancy arm of strategy consulting giant Boston Consulting Group, found that around two thirds of companies have now taken business resilience, liquidity and supply measures to maintain their business activities.
Inverto’s study expands on measures taken by companies to navigate the uncertainty and downturn grouping them in three distinct categories:
- Procurement control tower in place (e.g. active management of open pos and delivery schedules)
- Rationalise short/medium-term Capex spending unless it offers a clear longer-term competitive advantage
- Reduction of Opex spend to build financial flexibility (e.g. marketing)
- Recognition of distressed suppliers and identification / renegotiation of cost potentials through reduced cost structure
- Ensure rigorous cash management and reduce non-critical use of cash
- Adjust working capital (e.g. inventory management) to ensure ongoing delivery
- Conduct scenario-based planning and develop action plan accordingly
- Redefine budgets and savings targets by category and geography
Supply chain stability
- Mobilise central “war room” to evaluate and address supply vulnerabilities and monitor risk daily
- Conduct Covid-19 supplier audit, assess critical vendors and provide action-oriented feedback
- Identify and implement alternative supply scenarios and risk mitigation strategies (e.g. new local sourcing)
- Implement opportunities to partner with other companies to optimise resources
- Provide financial/non-financial support to value chain partners
See the full study here.
While the Covid-19 pandemic has undoubtedly created instability and economic uncertainty, we also see multinational clients seizing on the opportunity to reassess their operations, business model and supply chain strategy. Those that move to mitigate risk in their operations and supply chains are poised to better withstand the economic shocks and emerge stronger as economies restart. Companies need to consider: What action must be taken now to mitigate supply chain impacts and how to build resilience against future disruptive shocks.
For more information on this topic or to discover how we can assist you, contact us.