Preparing your business in Malta beyond COVID-19

As the Covid-19 crisis spreads in Malta, Europe and the U.S., there are opportunities for companies to learn from those in other regions around the world, that are weeks ahead in responding to the epidemic. Many in Malta are busy dealing with the present crisis and worrying as it seems that the help dished out by Government so far, is not enough to keep many businesses afloat.

On the other hand, China appears to be in the early stages of an economic rebound. While this recovery could be vulnerable if a new wave of local infections were to emerge, many Chinese companies have already moved beyond crisis response to recovery and post-recovery planning.

What can we learn from the experience of Chinese businesses dealing with COVID-19 that is also applicable for businesses in Malta?

1. Look ahead and constantly reframe your efforts.

By definition, crises have a highly dynamic trajectory, which requires a constant reframing of mental models and plans. Initial ignorance gives way to discovery and sense-making, then crisis planning and response, recovery strategy, post-recovery strategy, and finally, reflection and learning. This process must be fast to avoid getting stuck in complex internal coordination processes and being slow to react to changing circumstances.In China, some of the fastest-recovering companies proactively looked ahead and anticipated such shifts. For example, in the early stages of the outbreak, Master Kong, a leading instant noodle and beverage producer, reviewed dynamics on a daily basis and re-prioritised efforts regularly. It anticipated hoarding and stock-outs, and it tilted its focus away from offline, large retail channels to O2O (online-to-offline), e-commerce, and smaller stores. By continuously tracking retail outlets’ re-opening plans it was also able to adapt its supply chain in a highly flexible manner. As a result, its supply chain had recovered by more than 50% just a few weeks after the outbreak, and it was able to supply 60% of the stores that were reopened during this period — three times as many as some competitors.

2. Use an adaptive, bottom-up approach to complement top-down efforts.

Rapid, coordinated responses require top-down leadership. But adapting to unpredictable change, with distinct dynamics in different communities, also requires decentralized initiative-taking. Some Chinese companies effectively balanced the two approaches, setting a top-down framework within which employees innovated.

For example, Huazhu, which operates 6,000 hotels in 400 cities across China, set up a crisis task force that met daily to review procedures and issued top-down guidance for the whole chain. In addition, it leveraged its internal information platform, an app called Huatong, to make sure employees and franchisees were armed with timely information. This allowed franchisees to adapt central guidance to their own local situations, in terms of disease conditions and local public health measures.

3. Reallocate labour flexibly to different activities.

In hard-hit businesses, such as restaurants, employees were unable to carry on their regular activities. Rather than layoffs, some creative Chinese enterprises actively reallocated employees to new and valuable activities, like recovery planning, or even loaned them to other companies.

For example, in response to a severe decline in revenue, more than 40 restaurants, hotels, and cinema chains optimised their staffing to free up a large share of their workforces. They then shared those employees with Hema, a “new retail” supermarket chain owned by Alibaba, which was in urgent need of labour for delivery services due to the sudden increase in online purchases.

4. Shift your sales channel mix.

Person-to-person and bricks-and-mortar retail were severely restricted in affected regions. Agile Chinese enterprises rapidly redeployed sales efforts to new channels both in B2C and B2B enterprises.

For example, cosmetics company Lin Qingxuan was forced to close 40% of its stores during the crisis, including all of its locations in Wuhan. However, the company redeployed its 100+ beauty advisors from those stores to become online influencers who leveraged digital tools, such as WeChat, to engage customers virtually and drive online sales. As a result, its sales in Wuhan achieved 200% growth compared to the prior year’s sales.

5. Use social media to coordinate employees and partners.

With remote working and a new set of complex coordination challenges, many Chinese companies took to social media platforms, such as WeChat, to coordinate employees and partners.

For example, Cosmo Lady, the largest underwear and lingerie company in China, initiated a program aimed at increasing its sales through WeChat, enlisting employees to promote to their social circles. The company created a sales ranking among all employees (including both the chairman and CEO), helping motivate the rest of the staff to participate in the initiative.

6. Prepare for a faster recovery than you expect.

Only six weeks after the initial outbreak, China appears to be in the early stages of recovery. Congestion delays currently stand at 73% of 2019 levels, up from 62% at the worst part of the epidemic, indicating that the movement of people and goods is resuming. Similarly, coal consumption appears to be recovering from a trough of 43% to currently 75% of 2019 levels, indicating that some production is resuming. Confidence appears to be coming back as seen in real estate transactions, which had fallen to 1% of 2019 levels but have since bounced back to 47%.

While the depth and duration of the economic impact in Malta is impossible to forecast, China’s experience points to a scenario that companies should prepare for. Considering the time it takes to formulate, disseminate, and apply new policies in large companies, recovery planning needs to start while you’re still reacting to the crisis.

For example, a premium Chinese travel agency, facing a collapse in its short-term business, refocused around longer-term preparations. Instead of reducing headcount, it encouraged employees to use their time to upgrade internal systems, improve skills, and design new products and services to be better prepared for the eventual recovery.

7. Expect different recovery speeds for different sectors.

Unsurprisingly, sectors and product groups recover at different speeds, thus requiring distinct approaches. Stock prices fell across all sectors in the first two weeks that China’s epidemic accelerated, but leading sectors, such as software and services, and healthcare equipment and services, recovered within a few days and have since increased by an average of 12%. The bulk of sectors recovered more slowly but reached prior levels within a few weeks. And the hardest-hit sectors — such as transportation, retail and energy, representing 28% of market capitalisation for China’s largest stocks — are still down by at least 5% and showing only minimal signs of recovery.

This means companies need to calibrate their approach by business — and large companies need to calibrate their approach by division. For example, a large global food & beverage conglomerate used the crisis to accelerate the long-term shifts in its product mix in China (the company’s second largest market worldwide), including increasing its focus on health-relevant products, imported products, and on online sales channels.

8. Look for opportunity amid adversity.

While the crisis in China impacted all sectors to some extent, at a more granular level, demand increased in many specific areas. These include B2C e-commerce (especially door-to-door models), B2B e-commerce, remote meeting services, social media, hygiene products, health insurance, and other product groups. Some Chinese players mobilised rapidly to address these needs.

For example, Kuaishou, a social video platform valued at $28 billion, promoted online education offerings to compensate for school and university closures. The company and other video platforms partnered with the Ministry of Education to open a national online cloud classroom to serve students. And a major restaurant chain leveraged down-time to plan a new offering of semi-finished dishes, capturing the increased need and occasion for home cooking during the crisis.

9. Rapidly innovate around new needs.

Beyond rebalancing your product portfolio, new customer needs also create opportunities for innovation. When threatened by crisis, many companies will be focused on defensive moves, but some Chinese companies boldly innovated around emerging opportunities.

The insurance industry is notoriously conservative, but in response to the crisis, Ant Financial added free coronavirus-related coverage to its products. The action served a customer need, while promoting awareness of the company’s online offerings and improving customer loyalty. It expects a 30% increase in health insurance income in February, as compared to the previous month.

10. Spot new consumption habits being formed.

Some shifts will likely persist beyond the crisis, and many sectors will reemerge to new market realities in China and elsewhere. Indeed, the SARS crisis is often credited with accelerating the adoption of e-commerce in China. It is too early to say for sure which new habits will stick in the long run, but some strong possibilities include a leap from offline to online education, a transformation in health care delivery, and an increase in B2B digital channels.

Some Chinese companies are already planning around these shifts in the post-crisis world. For example, the Chinese business of a global confectionary manufacturer accelerated its existing digital transformation efforts. The company canceled offline campaigns for Valentine’s Day and other promotional activities, reinvesting resources instead into digital marketing.

 

Silvan Mifsud
Silvan Mifsud

Silvan holds a degree in Banking & Finance from the University of Malta and an MBA from the University of Reading, specialising in Corporate Finance and Business Leadership. Silvan has been involved in various sectors of the economy holding various managerial and directorship roles. Silvan is presently working as a Director for Advisory Services at EMCS, whereby he advises various businesses on their strategy, operations, corporate governance, financial performance analysis and sourcing their financing needs.

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