11, Apr 2020

Effects of ‘’COVID’’ 19 on the manufacturing industry

First of all we will be kicking off our analysis with the definition of corona viruses; that
are a large family of viruses whom some cause illness in people and other infect only
animals, some corona viruses infect animals and then spread to people, and then spread
from a person to another such us MERS(middle east respiratory syndrome),
SARS(Severe acute respiratory syndrome) and COVID 19 (new coronavirus disease
2019). Common coronaviruses cause middle upper respiratory illnesses (like the
common cold), coronaviruses have a crown like appearance under the microscope.
Covid 19 or coronavirus disease 2019 is a respiratory illness that can spread from one
person to another. The virus that caused covid19 is a new coronavirus first discovered
during an investigation into an outbreak in Wuhan, Hubei providence, China. Initial case
patients reported visiting large seafood and live animal market is Wuhan.
Covid 19 is spread the same way the flue and other respiratory illness spread: Through
respiratory droplets produced when an infected person cough or sneezes. These
droplets can land in the mouth or noses of people who are nearby and can be inhaled
through the lungs and can be spread between people who are in close contact with one
another (about 2m or less).
Symptoms of Covid 19 are mainly: Fever, dry cough, shortness of breath. These
symptoms appears 2 to 14 days after exposure and around 80% of persons show mild
symptoms while a big percentage do not show any symptoms (asymptomatic).
Covid 19 has been labeled by the WHO as a pandemic and till date there are more than
1,615,00 confirmed cases worldwide spreading through 213 countries and around
100,000 confirmed death.
Territories with confirmed covid 19 cases

This virus caused a worldwide disturbance and will definitely shape and change
humanity as we know it , not to mention the major effects on the world economy that
will face major setbacks, where almost all industries has been hit hard, not to mention
the virus effect on the manufacturing industry that will be discussed below.

As per UN data Workers in four sectors that have experienced the most “drastic” effects
of the disease and falling production are: food and accommodation (144 million
workers), retail and wholesale (482 million); business services and administration (157
million); and manufacturing (463 million). As per the International Labor Organization
(LIO) chief ‘’these numbers add up to 37.5 per cent of global employment and this is
where the “sharp end” of the impact of the pandemic is being felt now”.

Graph showing the “shock” that covid 19 had on the worldwide GDP
Reports on the Covid-19 outbreak is affecting supply chains and disrupting
manufacturing operations around the world are increasing daily. But the worst is yet to
come, with prediction that the peak of the impact of Covid-19 on global supply chains
will force thousands of companies to throttle down or temporarily shut assembly and
manufacturing plants in the U.S. and Europe. The most vulnerable companies are those
which rely heavily or solely on factories in China (epicenter of the outbreak) for parts
and materials. The activity of Chinese manufacturing plants has fallen in the past month
and is expected to remain depressed for months.

China, the epicenter of the crisis being a major player in the worldwide economic
ecosystem specially manufacturing industry its production has already been
substantially affected by the shutdown in Hubei province and other areas. Other major
economies like the U.S.A are also beginning to feel a direct impact as the authorities put
in place similar measures.

This slowdown in China has major effects on exporters to China as well. That being said,
the possible recovery will not be made in the short run and we can say that the
worldwide economy is heading for a recession.

Visual representation of the ’Covid 19’ risk to manufacturing.

Many manufacturing firms rely on imported intermediate inputs from China and other
countries affected by the disease, companies also rely on sales in China to meet financial
goals and selecting raw material. The slowdown in economic activity and transportation
restrictions in countries hit by the COVID19 has an impact on the production and
profitability of global companies, particularly in manufacturing and in raw materials
used in manufacturing. These companies that rely on intermediate goods from affected
regions, and that are not able to easily switch sourcing, the size of the impact is
unbearable. Small and medium-sized firms will have big difficulties and their business
will be the most affected questioning their existence and ability to recover.

Due to the disruptions in the supply of parts resulting from the coronavirus outbreak in
China as per many manufacturers they have already ceased production and went to a
short term cost-cutting measures but, when there is a supply-chain disruption, this will
stop quickly because of a lack of parts. The ISM said “global supply chains are impacting
most, if not all, of the manufacturing industry sectors.” Reports from around the world
showed factory activity was hit by the sharpest contraction in nearly four years. In
confirmation of the above as per economists at FHN Financial in New York “Parts are
scarce at an increasing number of companies,” this saying is being heard worldwide.

The widening coronavirus epidemic is already affecting ports, airports…etc, and is

putting a halt on the world wide supply chain that will have to wait for this pandemic
outbreak to evaluate how this post-pandemic era should be tackled.
In summary, the worldwide manufacturing industry as we know will face new
difficulties, since each outbreak requires slowing production in that area, and in a
globalized world, that leads to problems in many regions and industries and will slow
global growth. Manufacturers will have to survive periods of low sales and revenue and
face a disruption in their supply chain that will lead to as we say "Survival of the fittest".
References:

 https://www.reuters.com/article/us-usa-economy-manufacturing/u-s-manufacturing-
sector-stalls-as-coronavirus-hits-supply-chains-idUSKBN20P29T
 https://hbr.org/2020/02/how-coronavirus-could-impact-the-global-supply-chain-by-
mid-march
 https://www2.deloitte.com/us/en/insights/economy/covid-19/economic-impact-covid-
19.html
 https://www.accgov.com/9281/Prevention
 https://www.bbc.com/news/uk-northern-ireland-52032128
 https://en.wikipedia.org/wiki/Travel_restrictions_related_to_the_2019%E2%80%9320_
coronavirus_pandemic
 https://en.wikipedia.org/wiki/Survival_of_the_fittest
 https://www.marketwatch.com/story/us-factories-are-likely-to-close-because-of-the-
coronavirus-supply-chain-shock-2020-03-16
 www.bloomberg.com

Thank you,

Tarek Assaf

200601390