Breaking Down Coronavirus’s Impact on the Digital Economy
With more than 120,000 people infected and over 4,700 deaths as of March 12, 2020, the human impact of coronavirus (COVID-19) has been undeniable and tragic. While the economic ramifications of COVID-19 aren’t yet fully known, it’s clear that virtually every industry will be somehow affected.
To better understand the implications of coronavirus on the digital economy, I recently sat with James Huang, VP and Country Manager for Greater China, Payoneer. Excerpts from our conversation are below.
Mitigating Your Business’s Risk Amid Coronavirus
When it comes to mitigating the risk to your business posed by COVID-19, James had several suggestions to help weather the storm. In addition, he highlighted the steps being taken by marketplaces and Payoneer to help ensure business continuity.
What advice would you give to eCommerce businesses that are having their supply chains impacted in the face of coronavirus?
In the near-term, eCommerce businesses should lean on service providers from across the entire ecosystem to try to minimize losses and help find creative solutions at a time of increased business risk. Expanding into new territories to hedge against the risk of losses from a single market is a good start. Additionally, diversifying to categories whose supply chains are based in areas with less risk can help mitigate losses from manufacturing/shipping/fulfillment interruptions to existing product lines.
Most marketplaces have been recommending best practices to eCommerce businesses, such as extending vacation mode on your store setting, selecting longer shipping time options and increasing the frequency of communication with buyers. Some marketplaces have also been enacting policies to protect sellers from logistics delays, mitigating against negative feedback due to prolonged shipping, while a select few have gone as far as subsidizing handling fees and waiving penalties for refunds, which are also on the rise.
Payoneer is also helping sellers, many of whom are in a cash crunch with inventory down but overhead costs unaffected. We are exploring an expansion of our working capital service to help sellers keep a steady flow of funds during this slow period, and are already working with our global network of sellers, manufacturers, and infrastructure partners to look for opportunities for cooperation, fee discounts, new routes and sourcing, and more.
In the long term, we expect consumer demand to return, and the supply chain to stabilize, despite estimates of first quarter sales volume losses ranging between 20 to 50 percent. Most important is that eCommerce businesses keep their eyes on the future and ensure business continuity once the market stabilizes. Protecting the health and safety of their staff is crucial to ensuring long-term success. Finding a variety of routing and sourcing options will also protect against future supply-chain changes. Businesses should take this time to ensure redundancy and crisis-planning in every step of their value chain.
How should eCommerce marketplaces prepare in order to mitigate their financial risk in today’s volatile market?
At this point, the most that marketplaces can do to help is to provide support to those being hit the hardest. Some marketplaces are helping subsidize handling fees, waving penalty fees for refunds, or loosening policies regarding delivery times in response to decreased flight frequencies and longer customs processes. Others, like JD.com, have begun donating medical supplies to affected regions. It’s inevitable that there will be near-term losses resulting from slowdowns in manufacturing and demand in the current climate. However, by helping the small businesses that they rely on get through the toughest part of this worldwide crisis, marketplaces can limit the long-term effect on their industry, and help sellers and vendors recover more quickly from any losses they encounter.
Minimizing Consumer Fears
According to James, one of the immediate goals for those in the eCommerce sphere is to minimize consumer fears about buying cross-border. He also points to additional preparations businesses should take in case the situation escalates, including remote work technology and business continuity planning.
With Asia being the first region heavily impacted by the coronavirus, are there any key learnings that the broader global marketplace can enact in the immediate?
One of the most important lessons to impart on the broader global marketplace is the importance of minimizing consumer fears and backlash. Many Asian marketplaces have begun informational campaigns to lower consumer fears about buying across borders, preemptively addressing concerns by noting that the World Health Organization has not called for any restrictions on trade with China. Amazon is ensuring consumers are protected by preventing price-gouging on necessary medical supplies. While financial losses on business from the supply side are difficult to prevent, losses on the demand side can be mitigated by promoting consumer confidence. If demand can be kept at normal levels, the supply side will recover quicker. In the meanwhile, policies that aim to also protect and support sellers while they work through supply chain challenges will help stabilize the industry.
Additionally, businesses all around the globe should by now be thinking about what to do if this escalates. Organizations worldwide must consider how they will handle extended work from home periods and whether they have prepared their business accordingly. As needed, businesses should consider investments in remote work technology, from laptops to conference software. Manufacturers should consider how they will adjust their business in response to lower worker turnouts. For countries who have not yet felt significant effects from coronavirus, now is the time to ensure business continuity plans are in place and that they are prepared for the long term.