Special Topics in Global Business

Professor YK
Kimberly A. Pando Solano 2020010129

Mid-term Exam

As we enter in the second trimester of 2020, it is widely known how COVID-19 has
modified economies, consumer behavior, cultural environments, and what customer value
and demand. Policymakers have stepped in, competitors will respond, business partners will
struggle, employee attitudes will change, policy will remain at the forefront and technology
will continue to evolve.

It is undeniable that COVID-19 had a deep shock for every company around the
globe. A shock that will reach into any human-made system on the planet far past the
business. Although the full cost of the world’s economies is not clear yet, the economic and
final implications in Latin American will most likely push them into a recession. Due to the
structural vulnerability of its economies, the COVID-19 pandemic is highlighting inequality,
with the poorest more likely to have health problems that raise their risk of mortality, injury
and income loss (Grugel, A., 2020). The number of COVID-19 cases in Peru rose to 72,059
with 1,515 recorded in the last 24 hours, according to the Health Ministry. Peru is in second
place in South American cases, after Brazil. (The Korea Herald, 2020)

As stated by the Chamber of Commerce of Lima’s Economic and Business

Development Institute, in 2019’s report, it was estimated around one million people in Peru
were at risk of drifting back into poverty if their income was cut by an average of seven per
cent. It leaves them particularly vulnerable to unforeseeable situations such as family
sickness, career loss or shortened working hours, amongst others. (Sacasa, M., 2020) These
circumstances were exacerbated by the pandemic.

Upon reactivating the economies, governments should lessen the spread of the virus
before opening key sectors of the economy, and will need to have a highly competitive public
health system in order to detect and respond to new cases. Primarily, Peru’s policymakers
should center around diminishing high social costs, avoid permanent damage to the financial
health of households and fasten a quick recovery. According to Carlos Prieto (2020),
COVID-19 allows Peruvian congressmen to develop policies regarding the following aspects:
1. Health System: This emergency requires all health systems (MINSA, SIS,
ESSALUD) to be working in a coordinated way. It is advisable to gradually shift
towards a unified health system with private and public networks working
together. What is more, the public sector would pay for low complexity operations
such as gallbladder, stones, appendicitis, and or fractures. This expense would be
recognized to the private entity. In order to help, the resource limited citizenry, the
decongestion of low complexity treatments would allow the public network to be
more successful in providing more complex medical interventions.

2. Flexible labor market: Tourism is one of the industries hardest hit by the current
crisis. Peru heavily depends on the influx of tourism as it is the 4.6% of the GDP.
In 2019, Peru received 4.2 millions of tourists (without the Venezuelan
migration).
This labor-intensive industry demands a flexible framework. Therefore, to ensure
its recovery, a similar approach concerning the subsidy agrarian labor system
should be applied to tourism for the next years.

3. Public infrastructure: The emergency, yet again, reveals our terrible public
investment prioritization. The State often favors mega-investments of zero or
doubtful social returns, rather than basic and essential things, such as glycerin
soap and bathroom facilities in schools and hospitals. The public budget for the
year 2021 is the only one this government has set up and hence the only chance to
do things different. Looking for a better return of every invested PEN should be a
priority.

4. Private investment: As a short-term boost it should be determined that imports of

capital goods are excluded from VAT, unusually and only for this year. Similarly,
the emergency imposes the need to move more quickly in establishing a standard
and modern Single Text of Administrative Procedures (TUPA in Spanish) of
mandatory compliance for at least the country's 40 largest local governments. This
TUPA should be a powerful facilitator and promoter of, among others, investment
funds in shopping malls, hotel chains, grocery stores, real estate investment.
 5. Formalization and social contract: This pandemic has shed light over the rates of
informality and the lack of policies of social protection. Labor Informality takes
up to 70% of the Peruvian economy. In this regard, informal labor are those
employees, companies, sectors or practices that, knowingly, violates or partly
comply with the legal system, not taking into account, taxes, regulatory
requirements, among other issues. Because of this, many of the state incentives
(universal economic subsidy, independent bonus) did not take in all of these
people and thus only the 35% of them were benefited. One of the main reasons for
informal economic activities is that the cost of formalizing them outweighs its
benefits. The State, bureaucracy, and excessive paperwork are not capable enough
to create incentives to become formal workers. In addition, the benefits of
becoming a formal worker are not tangible or instant. Therefore, the informal
worker thinks the regularization of its business will bring more complications than
benefits. (Ruggiero, M., 2020)

However, Peru’s Minister of Economy has taken measure to supports small

companies (MYPES) and formal business with programs like “Reactiva Perú”
which subsides 35% of the payroll and provides the possibility of postponing the
payment of the Compensation for Period of Services (CTS in Spanish) of May.
We also have the down payment of the legal gratification, the temporary
suspension of the contribution to the Social Security Administration (AFP in
Spanish) and partial withdrawals of said fund. All of the aforementioned benefits
show that, in the long terms, in the face of exceptional situations as the one we are
currently living, said benefits become concrete and real, by providing protection
and support to the employer and the worker who opted for formality. (Ruggiero,
M., 2020)

On a micro level, Jorge Acosta (2020) advised companies to take measures centered
around NOW, NEXT and BEYOND. This formula allows business to manage the ongoing
crisis, think about the next crisis, and prepare itself for what comes after the current one.
Peruvian companies should focus on organizational resilience and business continuity and
crisis management. Each of the companies that form various industries should take the
following actions: (1) mitigate financial loss, (2) workers welfare, (3) demand management,
and (4) supply chain management.
 Mitigating financial loss: Constant tracking of working capital gaps should be carried
out in times of crisis. The suspension of its activities is deeply disrupting the chain of
payments; therefore, it is important to expect a major loss and to determine how these
shortages will be financed. This means monitoring and prioritizing orders, discussing
the terms and conditions with the suppliers, postponing purchases or payments by
urgency, greater use of its lines of credit, among others.

 Workers welfare: It is necessary to develop the procedures to recognize possible

causes of exposure, the guidelines for handling them and protecting the rest of the
employees, the identification and surveillance of groups of persons at risk, the internal
coordination about the crisis and the security activities taken by the organization are
some examples of measures that are pursued for safety. Shortly after, the
establishment of protocols so the staff can work in a safe environment, along with the
usage of masks, disinfection practices, and an action plan for the replacement of
equipment.

 Demand management: Customer must be kept aware of the step taken by the
company to protect the operations and the policies to meet their needs in a safely
matter. MYPES should developed new consumer service platform and sales channels
that enable the business continuity. The enhances use of digital advertising platforms
ensures the need for other distribution model, while maintaining the security
procedures. A study must be performed on the use and quality of the good or service
offered. Market preferences continue to change in times of crisis, depending on the
usage of the good or service.

 Supply chain management: At the moment of speaking the supply chain is severely
impaired: stock shortages, closed delivery centers, inability to receive or deliver
products. It is vital to identify the key goods and materials for the production,
comprehend their interrelations and the capabilities of the suppliers. In the face of
crisis, a diversification of suppliers and products must be made. The centralization of
warehouses and distribution centers makes it difficult to respond to the requirements
of the delivery points before a situation in a warehouse.
 Lastly, we need to understand that the practices adopted by organizations during this
period will become standard behaviors, the organizational model will adapt, the way of
operating will be more flexible and decentralized. As many companies will be heavily
impacted by the immediate effects of the recession, those who better respond to the global
shifts and emerging business models will become the new leaders. We can surely say
COVID-19 had come to change our lives and our businesses.
References

Acosta, J. (2020) “¿Cómo enfrentar la crisis del COVID-19?: Prácticas y

recomendaciones?”. Published in EY: Building a better working world. Retrieved from:
https://www.ey.com/es_pe/advisory/como-enfrentar-crisis-covid

Grugel, A. (2020) “Covid-19 hits an economically weak and deeply unequal Latin America”.
Published in Open Democracy: free thinking for the world. Retrieved from:
https://www.opendemocracy.net/en/democraciaabierta/la-covid-19-llega-una-américa-
latina-económicamente-débil-y-profundamente-desigual-en/

Prieto, C. (2020) “Covid-19: la crisis como oportunidad” Published in Gestión: OPINION.

Retrieved from: https://gestion.pe/opinion/covid-19-la-crisis-como-oportunidad-economia-
peruana-coronavirus-noticia/?ref=gesr

Ruggiero, M. (2020) “La informalidad en el Perú y el Covid-19”. Published in Gestión:

OPINION. Retrieved from: https://gestion.pe/opinion/la-informalidad-en-el-peru-y-el-
covid-19-noticia/?ref=gesr

Sacasa, M. (2020) “Peru embarks on a comprehensive approach to COVID-19”. Published

in United Nations Development Programme. Retrieved from:
https://www.undp.org/content/undp/en/home/blog/2020/peru-embarks-on-a-comprehensive-
approach-to-covid-19.html

The Korea Herald (2020) “Global map of COVID-19 cases”. Source: Johns Hopkins
University, Korea Centers for Disease Control & Prevention. Retrieved from:
http://www.koreaherald.com/coronavirus/index.php