Corona Crisis: Best Business Practices During The "New Abnormal"

by Nenad Pacek

Founder & President

GSA Global Success Advisors

2 April 2020

"Don’t worry. We had bigger problems in this world before….and we did not resolve them.” - Anonymous

 “For the first time in history we have a chance to save ourselves and the world by sitting at home and doing nothing. And we are on the way to fuck that up too.” - Anonymous

How long could this go on and what kind of recovery is likely?

After running four webinars in the last three weeks for heads of MEA and CEE operations, and after numerous one-on-one conversations with our clients, I have incorporated these business insights into this paper on best business practices for managing through this crisis period. I would like to thank our clients for sharing their wisdom.

I have combined these learnings with my long-standing observations of what the best companies do in times of economic crises that enables them to come out stronger later.

In my recent Coronavirus paper I wrote about 2-3 quarters of business disruption as being our base case scenario but since there remains an appalling lack of global co-ordination regarding lockdown policies and also monetary and fiscal stimulus programs, we have started to lean towards three quarters of business disruption; two quarters of acute disruption is now our best case scenario. Even as some countries take drastic measures and may stop the virus outbreak sooner than others, they will still not be able to open up as long as there are outbreaks elsewhere. And if too many countries engage in insufficient virus containment measures in the coming 2-3 months, the worst-case scenario of the crisis spilling over into Q1 and Q2 2021 remains possible. And for this worst case, companies also need to prepare plan C. Plan C could also be needed in oil exporting nations if the oil price falls to $10-20 per barrel for a few months.

Unfortunately, quite a few political leaders (I am not going to name them, you can make your own conclusions) around the world remain infected with the “Morona virus”, refusing to accept reality. These so called “leaders” are not implementing the only measures that can contain the outbreak while we are waiting for the vaccine: a) drastic enforcement of social distancing and b) a monetary and fiscal response that can fully plug output and demand gaps.

Those of you running MEA or Russia/CIS operations are accustomed to the “New Normal” of the 2015-2019 period. Now you have to adapt to a temporary “New Abnormal”. Those of you running Central Europe (where growth and business have been great over the last 3-4 years) will suddenly have to switch from thinking about accelerating already robust growth to managing this “New Abnormal”. Your HQ will not be used to bad news about CE markets so the sooner you communicate the bad news upwards, the better.

In terms of expected recovery, many commentators are talking about a V or U shape recovery in the post-outbreak period. Some are projecting, confusingly, a L shaped recovery which implies no recovery ever. A V or U-shaped recovery assumes that most nations will start and finish virus containment measures at more or less the same time and that an immediate period of pent-up demand will kick in quickly as soon as the outbreak is over. However, virus containment measures are not being implemented at the same time or intensity, so we might end up in a recovery that will resemble the Nike logo i.e. a slow, gradual recovery. The likelihood of this gradual recovery scenario is reinforced by the fact that public debt will rise everywhere as governments are forced to borrow during the crisis. This means that government spending will be lower in the first couple of years of the post-crisis period. Additionally, it will take some time for companies to resurrect their investment plans and regain purchasing confidence. Households, despite some government help during the crisis, will deplete at least a portion of their savings and will become more cautious spenders for at least a year or two.

Best business practices during the “New Abnormal”

 “In the long history of human and animal kind, those who learned to collaborate and ímprovise most effectively have prevailed.” - Charles Darwin

1.  Communicate the expected hit on your business with global headquarters early. Do not hold back bad news and increase the frequency of your upward communications. If you detect signs of a steeper business downturn on the horizon, immediately inform your HQ and carefully explain the reasons for the expected downturn. At least, managing expectations at HQ level of MEA and CEE is now easier than before; one semi-silver lining of this crisis.
2.  The message to HQ should also be that one must not lose medium to long-term perspective in CEE and MEA because of this crisis; the virus outbreak is, after all, a temporary disruption. Explain and reinforce the idea that this crisis might offer good business opportunities too (see later points) and that knee-jerk reactions should be avoided, especially those that might damage long-term business or a market position against key competitors.
3. Use the crisis to boost market share, especially against more short-termist major competitors or financially-challenged smaller competitors. The history of economic crises (especially in emerging markets) reveals that firms which focused on boosting market share during the crises came out of the crises periods much stronger, with these gains in market-share fuelling their bottom line numbers for years. Increased market share can create sustainable and enduring superiority over both multi-national and local competitors. Since this is a temporary disruption to business and we know it will end, focus on market share is crucial; companies that see crises as opportunities usually have a combination of senior management with a long-term mentality and healthy cash reserves. Our live polls during the last few webinars reveal that 77% of multinationals plan to focus on boosting share in CEEMEA and “not wasting a good crisis”.
4. Start preparing a “business reactivation plan” for the post-crisis period. The key is to have a dedicated team in place that has been tasked with overseeing the business boost in the post-outbreak period. A number of our clients have already done this.
5. Make sure you don’t lose sight of the medium and long-term: “Don’t freeze, continue to move,” says one regional director. Sustain your medium and long-term initiatives if you can (some of you might be getting a different message from your CEO though).
6. Focus on things you can control; “Control the controllables,” says one regional director.
7. Stress test the organization with various negative scenarios and especially those scenarios gaming the various possible durations of this crisis. Scrutinize all the variables that might impact costs and revenues during the stress period; look at all the elements of the balance sheet and the income statement that might be most impacted and how this could happen. Prepare a quick reaction plan if financial stress materializes.
8. Cash is king. Review the potential impact declining revenues, or inability to collect receivables, or certain costs might have on your cash position.
9. Support local partners and distributors and make them feel genuinely integrated into your organization; this is about “ensuring strong distributor continuity beyond the crisis,” in the words of one of our clients. Have an honest discussion with your local partners and distributors to see if they are facing any financial distress, perhaps linked to overleverage and/or an inability to collect receivables.
10. People should be your priority: ensure not only the safety and the health of staff but also avoid job cuts if you possibly can; you have invested an enormous amount of time in finding, retaining, nurturing and building talent. Do not throw all of that work away. Only 18% of our multinational clients in the live polls during our recent webinars said they are currently planning staff lay-offs during the crisis. Laying good people off now will severely limit your ability to bounce back when the outbreak is over. If you are being forced to cut staff costs then explore options for government assistance (if available) or perhaps implement collective pay cuts, ask people to use annual leave allowance, ask employees to take unpaid leave, cut hours, control/reduce variable compensation, control/reduce overtime work, or even offer (extra) stock options to those executives who will take a pay hit in the next couple of quarters. Companies that avoid lay-offs will boost staff loyalty and performance in the years to come and be poised to take advantage of the post-crisis recovery. For companies operating manufacturing plants in CEEMEA, the same principle can be applied to blue collar workers: rather than outright lay-offs, shorter working hours and collective lower pay is preferable in terms of deepening for staff loyalty and boosting future performance.
11. Closely manage receivables as forex availability will be limited across many markets in MEA and a few in CEE. Some companies have already shifted to pre-payment or payment on delivery terms in some countries. Many companies have created dedicated internal teams who are chasing money. “You want to chase as hard as you can, otherwise you are a low priority in a payment queue,” says one executive. “We are pushing hard to get paid but doing so in a respectful manner,” adds another executive.
12. Be careful extending longer credit terms and examine why your distributor is requesting that. If there is a good reason then relax credit terms at the margins but take into account the country you are operating in, how long you have known the distributor and their financial resilience.
13. Speed up local decision making by giving more empowerment to country managers.
14. The history of best business practices during economic crises shows that companies that outspend competitors on marketing during a crisis come out stronger when a crisis is over.
15. The history of best business practices during economic crises also shows that companies that keep innovating during the crisis also come out stronger when the crisis is over.
16. Acquisition opportunities will increase this year especially between April to August but probably through Q4; those local competitors or distributors that you were planning to buy are getting cheaper. According to our live polls during the recent webinars, 22% of multinationals are planning to buy-out competitors during the crisis and 19% are planning to buy out their local distributors. Many competitors and distributors might end up illiquid and/or insolvent and some might be abandoned by their banks and forced into a distressed sale. As the virus is a temporary economic disruption this might be an excellent opportunity to buy competitors and distributors. Most of our clients have been going more direct or semi-direct into CEEMEA markets; acquiring distributors and partners over the last 2-3 years (in order to increase control over their business and to boost local relevance). Equally, many of our clients have been planning to buy local players with sub-premium product portfolios. Buying established market share through local players in the coming months could bring significant benefits especially as many customers and consumers have grown ever more price sensitive (especially in commodity exporting nations) over the last 4-5 years). Many buyers (households, firms, governments) will remain price sensitive for a several years after the outbreak retreats. Bear in mind though, that even if you become a more aggressive acquirer in the next couple of quarters, that does not mean you should neglect an in-depth due diligence.
17.  If you were already planning to increase your manufacturing footprint within CEEMEA, the upcoming economic downturn could push land prices down and also increase your negotiating power with governments as far as grants, incentives and subsidies are concerned; based on our late 2019 surveys, we know that about a third of our clients were planning to further expand their manufacturing footprints across MENA and one fifth were planning to beef-up manufacturing in Sub Saharan Africa. This crisis has shown that those companies with more manufacturing sites across the region have been more resilient to the ongoing turmoil. Building a larger manufacturing footprint in the area is a good long-term strategy, especially as the world continues to plunge towards more protectionism amid rising “deglobalization”.
18. Reshuffle your marketing mix and in particular make sure you have the right product portfolio for the crisis period at the right price points. “Any mismatch can cost you dearly during the crisis and cause hard-earned market positions to be lost,” says one regional director.
19. Now that many teams are virtual ensure that you keep staff engaged and motivated. Run virtual training programs on how to run virtual teams. Keep in close contact with staff via video or phone links. Increase communication levels since uncertainty can breed negative or even disruptive staff behaviour that may exacerbate already lower corporate results caused by the downturn.
20. Run virtual town halls to explain the thinking behind your short, medium and long-term plans to your employees.
21. If forced to cut pay to preserve cash in the short term, offer more stock options and medium-term bonuses so that staff that take a hit now will benefit from the upturn.
22. Get even closer to customers than usual. They will appreciate your care during these difficult times. It sounds like a cliché but it should be one of your top priorities.
23. Accelerate your digitalization efforts as a way of shifting more sales online but also boost your productivity and efficiency with new technologies. Many of our clients are pushing digital channels, both internally and externally. Many of our clients are prioritizing their marketing budgets to drive internet traffic to their digital platforms.
24. Cut your overall marketing spending but keep some elements of it that will help you beyond the crisis. “We are maintaining activities related to our brand relevance and loyalty but we are not hard-selling because no one wants to listen,” says one regional manager. Another executive says: “Marketing spend now needs to be more focused – there is no point in doing everything we had previously planned.”
25. Some executives partly disagree with point 23 saying, “This is the right time to increase visibility of our brands as others retrench,” says one regional executive, and adds, “higher spending is the way to boost market share.”
26. See if there is anything you can to do rethink your business and change your approach; look at everything you do from unconventional angles and encourage your staff to think outside-of-the-box. Remember that creativity drops sharply during stress so make sure you reduce the stress of your employees as much as you possibly can. In terms of new ideas, one of our clients has just expanded their home delivery service because customers are avoiding their restaurants. Another is arranging online live presentations of luxury goods to prospective buyers. Another one is running online training sessions for distributors. Get all your staff involved in brainstorming about what one can do to at least mitigate the impact of the outbreak. (You might also find some new talent hiding in plain sight in this process).
27. Get locals who work in your offices across CEEMEA to find solutions and give them more responsibility – your staff who grew up in emerging markets are more used to tough times than managers from the developed world and tend to be more innovative when it comes to navigating turbulent economic times. Engage with them rapidly and regularly, and generously reward implementable ideas that can help your business. I have seen this work time and time again during the various economic crises I have witnessed in CEEMEA over the last 30 years.
28. Engage in regular global exchanges with other offices around the world and exchange ideas on how to manage your business during the crisis. Create awards and bonuses for best implementable ideas.
29. Focus on retaining your best staff, especially if we end up in a worst case scenario. In a worst case scenario, you might be forced to make a tough choice about which people to retain. The best ones must be a priority, even if that comes at the expense of some others.
30. Review capex spending plans with a fine-tooth comb and cut, if and, where appropriate. In countries where the economic outlook is tough in the medium-term, it makes sense to cut capex plans deeper than elsewhere. Take a look at our country reports to assess outlooks.
31. Review business performance much more often than usual. Most of our clients are reviewing where they stand on a weekly basis now. Use time to run performance reviews of your staff.
32. Be ready and calculate for a temporary increase in logistics costs, especially air cargo. Review if it makes sense the option of sea cargo (provided you are not running out of stock in certain locations). Currently moving cargo between countries and even within countries is slow, sometimes impossible and getting more expensive.
33.  As some of your competitors are forced into knee-jerk reactions and rapidly lay people off, see if you can get some fabulous talent into your organization at a lower than usual cost (even if you don’t need that talent right now).
34.  Use time to prepare market entry in new geographies and draw-up detailed market expansion plans for existing geographies.
35.  Buy and accumulate raw materials for your manufacturing plants at lower-than-usual prices.
36.  Try to ensure supply of product as factories (maybe even your own) shut down around the world. Easier said than done, everybody readily admits.
37.  Focus on inventory management.
38.  Have a plan C for the worst-case scenario (if the coronavirus mutates to a more contagious and more lethal form, where the oil price hits $10 or if the outbreak lasts until the summer of 2021 around the world). While this is not a likely scenario, viruses are unpredictable especially if health authorities now start to bombard them with new and established anti-viral drugs. As I explained in our comprehensive Coronavirus paper, coronaviruses can then switch off their “proof-reading” mechanism and start making errors (mutations) when making copies of themselves more quickly than they normally would. Coronaviruses are statistically 10x less likely to mutate than the influenza viruses so everybody is hoping that this virus will not fundamentally change (despite minor mutations so far) by the time the vaccine is available (in 12-18 months).
39.  Keep telling yourself, your staff and your board that this is only temporary, and that rapid adaptation and flexibility are essential in navigating through the crisis.

This special report was written for members of our MEA Business Group and CEEMEA Business Group.

Get in touch for more:

www.meabusinessgroup.com

christian.deimel @ meabusinessgroup.com