China’s Gift Has a Fat Tail – Corporate Collapse
Potential Impacts of the Carona Virus will cascade across the globe. With deaths on track to climb quickly now that it has reached epidemic proportions of infection, the fat tail extends to the corporate sector.
With whole areas of China on lock down, factories are shuttered and with it, Multinational and local firms who’ve shifted their supply chains into one big bucket of cheap Chinese labour, are scrambling. That ‘cheap labour’ door is now slammed shut and the ‘wildcard’ of ‘lack of supply’ of parts and materials will bite hard. Those that might have been shifting manufacturing supply to Vietnam over the past few years may have a little longer but if the crisis worsens, as seems likely, that too will be a problem. Local suppliers with sufficient capacity may see a quick jump in demand, and good profit margins to be made. If they have enough raw materials, they could grow quickly. But my expectation is that a series of #CascadingDiscontinuitySets, those constant bites at a system, will ultimately see many businesses heavily vested into Chinese cheap production & delivery fail to survive.
We also now see the fallacy that is ‘Just In Time’ inventory management. A beautiful system when everything arrives on time. An absolute nightmare as soon as time check points go astray. The JIT brigade reliant on Chinese imports are dead in the water.
Tourism is getting smashed, both the corporate sector conference model and the personal destination models. Expect to see hotel operators fail. Already costs of flights from Australia to the US have dropped by around 15% from their recent ‘$1200 return’ to now around $1000. I’ve seen some at $850 or so. Anticipate seeing fewer flights as airlines pull some schedules to maintain filled planes. That’s really a no-win because filled planes = people close to each other = worries about China’s Gift spreading. Airlines will probably fail or we will see mergers announced. Particularly vulnerable are the two ends of the scale – small Government owned airlines of tourism heavy locations (Emirates, Pacific Islands) or those reliant on the High end traveller to drive profits. Those used to flying at the pointy end of the cabin are not going anywhere any time soon. That may be a boon for recovery deperate fire ravaged towns across the eastern seaboard of Australia, with local dollars being spent in Country rather than dispersed overseas.
The unexpected positives?
Fewer trips by plane, large ships and car, shuttered coal powered factories = less green house gases. Maybe the Carona Virus will do what Governments and Politicians around the world have been so flaccid at addressing?
A push to localised produce – troublesome for places like Australia that think broad acre farming in a land of increasingly damaging droughts and fires is the only option, but elsewhere, community sharing comes back with a vengeance. As does food production that does not rely on Animal Husbandry – the controlled factory meats of the Beyond Meat and Impossible Foods gets another push into mainstream.
And here’s a stretch, but the potential for China to address values that allow the consumption of ‘exotics’ emerges.
China’s Gift has a Fat Tail and the world now sees that it is so intricately linked to China, it cannot escape unharmed.
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