Week of April 21, 2003
Snapshot from the Field
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SARS: Impact on Corporate Operations Minimal - So Farby JACK LYNE, Site Selection Executive Editor of Interactive Publishing
Mysterious and disturbing, severe acute respiratory syndrome (SARS) remains a dominant global health concern. But what tangible impact is the alarming disease having on corporate location patterns and existing facilities?
Not much, the answer seems - at least so far. SARS' longer-term impact, however, remains a very large question mark.
More certain are the anecdotal examples of how the fast-spreading disease is definitely having an effect on some activities and operations in Asia and Canada, the two regions hardest-hit by the disease. Among those examples:
CoreNet Global has canceled its May 3-7 Toronto Global Summit "in response to growing member and sponsor concerns over SARS and in light of today's Centers for Disease Control (CDC) issuance of an Interim Travel Alert for Toronto," Peggy Binzel, president and CEO of the real estate association, wrote in an April 22nd e-mail to CoreNet members and prospects. More than 1,500 industry professionals had reportedly registered to attend the Toronto conference. The event isn't being immediately rescheduled, Binzel said, due to "the indefinite nature of current SARS-related uncertainties."
Motorola, after a night-shift worker at its Singapore cell-phone manufacturing plant contracted SARS, shut down the factory for one night in late March. More than 300 of the ailing employee's co-workers were then quarantined for a week. The production facility, however, has since resumed normal operations, and no other employees have contracted SARS.
LG International Corp., South Korea's second-biggest electronics maker, has ordered workers in its south China plant to wear protective masks. In addition, employees each morning are given a Chinese herbal remedy said to prevent influenza-like illnesses.
Semiconductor Equipment and Materials International (SEMI) on Apr. 9 postponed its Semicon trade show in Singapore, moving it from May 6-8 to Aug. 12-15. "Rescheduling the show is the most prudent action," SEMI President and CEO Stan Myers explained. "A number of exhibitors, as well as their customers, have instituted travel restrictions or are hesitant to participate in public gatherings in Singapore at this time." The postponement is the first in Semicon's 32-year history for any reason other than weather.
Asian Contingency Planning Called For? Such anecdotes, however, seem the exception rather than the rule when it comes to existing plants' ongoing operations.
That's particularly welcome news for the electronics industry. Asian factories make a generous chunk of the world's supply of computers, cell phones, consumer electronics and the like. Eighty percent of the new computer motherboards entering the global marketplace, for example, are manufactured in China and Taiwan; and those same two nations churn out about 60 percent of the world's notebook computers.
It's production business as usual, though, at most Asian electronics plants, regional industry analysts say. The murky unknown, however, is whether such plants, in Asia and elsewhere, will continue to be able to operate freely, immune from any SARS impact.
"An epidemic like SARS, if it carries on, is obviously going to be quite serious; but we don't know that," said Bank of Canada Gov. David Dodge "We know there is going to be a short-term impact," Dodge said told a press conference in Canada - a nation that has recorded 324 confirmed or suspected SARS cases. Significantly, all 14 SARS-related deaths in Canada have been in the greater Toronto area.
Existing plants, however, could feel a more severe longer-term impact, some analysts are saying, with a worst-case SARS scenario - with no cure identified and the sometimes-fatal disease's further spread.
"While global consumer demand [for electronics] is surging, the ability of suppliers in the Asian region to provide the goods and services that support high levels of growth simply might not be there," said Russ Craig, a digital consumer technology analyst for Aberdeen Group (www.aberdeen.com), a Boston-based firm specializing in information-technology market analysis, consulting and positioning.
Western electronics firms should proactively plan for a worst-case SARS scenario, Craig cautioned.
"These firms need to have contingency planning in place to mitigate the damage to their profit-and-loss statements should their suppliers have significant delays and disruptions," Craig said. "SARS threatens the supply of key component building blocks, not just the assembly plants."
But at the same time, SARS is serious business, many medical authorities are warning.
As of April 22, the number of reported SARS cases in 16 nations stood at 4,162, with 213 deaths, according to the World Health Organization (WHO at www.who.int/en). And those numbers come as global health experts continue to charge that China is seriously under-reporting SARS' incidence.
Even so, though, the fatality rate for SARS doesn't approach the ratio for particularly virulent diseases, health experts say. SARS' 4-percent mortality rate, for example, is about equal to that of measles, and it's lower than the rate for influenza, they maintain.
Facts, however, aren't always effective antidotes for fear. And the WHO has issued a recommendation advising travelers not to go to Asia unless absolutely essential. Numerous national health agencies have followed suit. The disease originated in the south China mainland, and was then spread by airline passengers to Hong Kong and beyond, according to the WHO.
The CDC's Canadian travel advisory is less stringent. It simply advises Americans to be careful when traveling in Canada, and particularly in Toronto.
"There is no reason to stay home," advised CDC Director Julie Louise Gerberding, "but be aware that SARS is present in some settings in the community, and you may wish to avoid the hospital environment ... or other places where [the disease] may have been present."
Most existing plants haven't been affected by such travel cautions. But the warnings have begun to have a massive impact on the travel, lodging and tourism industries. Tourism revenues in Asia, for example, will drop from 30 and 50 percent in the year's first quarter, and retail spending could plummet by 20 to 25 percent, according to estimates from Singapore-based analysts with United Overseas Bank (www.uobgroup.com).
The impact of the travel and tourism drop-offs has begun to ripple out into parts of Asia's commercial real estate sector. Hong Kong's Retail Management Association, for example, recently issued a public plea to landlords to temporarily reduce retailers' rental rates by 50 percent.
'Temporary Demand Shock'? Movement is the key indicator in gauging SARS' impact, according to Don Hanna, Citigroup's chief economist and market analyst for the Asia-Pacific.
"The channels of the effects of SARS on the economy are quite similar to those of the war in Iraq, except for changes in oil prices," Hanna wrote in a recently released report. "The spread of the virus discourages the movement of people, capital and goods."
SARS could also clearly constrain movement for corporate location teams, which might begin avoiding heretofore fertile site-selection turf. And that, obviously, could have a significant impact on location patterns.
Many companies, for example, have adopted the cost-cutting strategy of moving part of their production to cheaper offshore locations - particularly to Asia. Similarly, one of corporate site selectors' favorite locales is Canada - especially Toronto.
Constrained movement was already evident in the mid-April decision by the Maryland Department of Business and Economic Development's Office of International Business (OIB at www.choosemaryland.org/international) to postpone its April 21-25 Asia Trade Week event. OIB trade representatives from China, Japan, Singapore and Taiwan were scheduled to meet individually with Maryland companies now doing business in Asia or targeting the region for expansion.
"While some local companies have cancelled events that require travel to Asia, OIB is concerned about the impact SARS might have on an event that requires Maryland's trade representatives from Asia to travel to the U.S.," OIB Director Peter O'Neill explained. Asia Trade Week will be rescheduled for the fall, O'Neill said.
SARS' economic impact, however, could be limited and brief, other analysts say. At least if there's a best-case scenario - with the virus controlled and spending returning soon after to normal levels.
"We assume that the economic impact of SARS will be largely confined to a temporary demand shock, with the supply side of the economy largely unscathed," economists at Goldman Sachs (www.gs.com) have predicted.
The big question, of course, is whether such assumptions prove to be correct.
©2003 Conway Data, Inc. All rights reserved. Data is from many sources and is not warranted to be accurate or current.