Thursday 20 February 2020

Focus or Diversify?

The current COVID-19 (coronavirus) epidemic sweeping China has resulted in over 75,000 cases of infection and, sadly, over 2,000 deaths as at the time of writing this article.

The difference between this outbreak and that of SARS in 2003 seems to be a higher infection rate but (at least so far) a mercifully lower fatality rate.  Recovery rates also seem to be higher, with fatalities mainly confined to those with weaker immune systems or breathing problems.

One of the main causes of the higher rate of spread in the case of COVID-19 was that it struck just as people were preparing to leave the city of Wuhan (“ground zero”) for their Lunar New Year holidays.  This is a time when Chinese traditionally return to their families, so the rate of infection was bound to increase.  

Among the other impacts of the epidemic was the closure of factories to prevent healthy workers being infected by those who were.  This has resulted in stoppages in and/or lower rates of production for companies such as Apple, who are likely to see lower sales of new devices and hence lower revenues.  

On the consumer side, goods produced in China may be in shorter supply and/or prices may increase.  This means that production across the world may also slow down to lack of components manufactured in China.  

Due to the US’ “trade war” and the resulting tariffs imposed on China-made goods, some manufacturers had already looked into and indeed started shifting production to other countries in Asia.   The COVID-19 epidemic has resulted in more looking to do this, and accelerated plans amongst others.

China has become the world’s factory owing to:
  • An abundant supply of cheap labour
  • Reasonably well-educated (or at least trainable) workers
  • Improving quality standards
  • A weak currency
Many may now be realising that they have put their eggs into the proverbial single basket.  

Tempting as it is to concentrate supply in the cheapest area (after all, that increases our profit margins and keeps the shareholders happy), it also means that our supply lines can be subject to unforeseen shocks, whether legislative (the US/China “trade war”), natural (earthquakes, tsunamis, epidemics) or man-made (wars or civil insurrection).  An alternative would be to maintain supply in several areas, with perhaps one being the “main” source, whilst others could be scaled up quickly in the event of problems arising.

Perhaps diversification is still a sensible way to go…


I have spent more than half my life delivering change in different world markets from the most developed to “emerging” economies. With more than 20 years in international financial services around the world running different operations and lending businesses, I started my own Consultancy to provide solutions for improving performance, productivity and risk management.  I work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email. My website  provides a full picture of my portfolio of services.  For strategic questions that you should be asking yourself, follow me at @wkm610.

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