The Economy

Coronavirus Crimps Supply Chains, May Harm World Economy

Companies with operations or suppliers in China are experiencing business interruptions, and global GDP growth could take a big hit.
David McCannFebruary 13, 2020
Coronavirus Crimps Supply Chains, May Harm World Economy

Coronavirus may not ultimately infect 60% of the world’s population, as a leading public health expert controversially suggested on Tuesday. But it’s growing increasingly likely to trigger serious economic consequences worldwide.

Dun & Bradstreet estimates in a new report that if a vaccine for the virus is not invented by the second quarter of 2020, and containment of the disease is therefore delayed until the fourth quarter or beyond, the global economic cost could be as much as a one-percentage-point slowdown in global economic growth.

While that’s a sobering prospect, China would fare much worse, according to the report, standing to suffer up to a three-percentage-point blow to GDP growth. “Isolation of China from the rest of the world is expected in this scenario,” D&B wrote.

Government-enforced closures of businesses in the most affected regions of China are already impacting global businesses with operations or suppliers there, the report said.

U.S. companies are particularly at risk. According to D&B, at least 51,000 companies around the world have one or more direct or Tier 1 suppliers in the “impacted region” of China, comprising the 19 provinces that reported 100 or more confirmed cases of the virus as of Feb. 5. Among these companies, 92% are American, and 163 of them are Fortune 1000 companies.

At least 5 million companies around the world have one or more Tier 2 suppliers in the impacted region, including 938 of the Fortune 1,000.

Approximately 49,000 companies operating in the affected region are branches or subsidiaries of companies based elsewhere. About half of those headquarters are in Hong Kong, 19% are in the United States, and 12% are in Japan.

There are also thousands of companies with corporate headquarters in the affected region that have branches and subsidiaries in other countries. The ground-zero province of Hubei is home to more than 17,000 headquarters.

Five industry sectors — business and personal services, wholesale trade, manufacturing, retail, and financial services — account for more than 80% of the businesses within the affected provinces.

“Businesses within these locations and operating within these industry verticals are most likely already experiencing disruptions to their operations,” D&B said.

China’s economy was already slowing before the coronavirus epidemic started to make big news.

D&B offered some near-term best practices for mitigating supply chain risk until the disease is contained and eradicated:

  • Develop a risk-based assessment process that helps identify and continuously monitor a variety of risks that could impact the productivity of your supply chain.
  • Complete an assessment of suppliers to ensure your suppliers’ suppliers are not going to negatively impact your business.
  • Monitor your supply chain. Make sure to monitor the risks associated with both Tier 1 and Tier 2 suppliers to ensure your company has a complete view of the supply chain.
  • Identify alternative suppliers in non-impacted regions of the world to diversify the supply chain and limit dependencies on any one supplier of geographic region.

Dun & Bradstreet drew its economic assessments from its database of 355 million entities worldwide and studies of the economic impacts of two similar other infectious disease outbreaks: SARS in 2003-2004 and Zika virus in 2015-2016.