Small businesses are precarious during the pandemic

As the Chinese government scrambles to contain the spread of the coronavirus, Fabien Gaussorgues, CEO of Agilian Technology, is struggling to keep his company afloat. His company makes consumer electronics for small business customers in North America.

As CEO, Fabien Gaussorgues is not sure that all 80 employees at the factory will return after the extended Lunar New Year holiday. Even if they do, he cannot guarantee the quality of the process and cannot ship to customers because many flights from China have been canceled.

“We have warned our customers that air freight is not possible for the next three months,” said Gaussorgues. “Suppliers cannot commit to anything at this time. That is the number one risk. It could force us to stop production,” he added.

Agilian Technology’s plight is a case study in the challenges facing businesses in China as they try to get back to work after the Lunar New Year holiday, but are hit by the coronavirus outbreak. Lockdowns and travel restrictions are increasing, choking supplies of raw materials and making it difficult for workers to travel.

Agilian Technology is among the small and medium-sized enterprises operating in China facing difficulties due to nCoV.Photo: FG

The coronavirus is the latest blow to businesses in the world’s largest manufacturing economy, which was already hurt by last year’s trade war with the United States. The disruptions to production are expected to affect companies of all sizes, including giants like Apple and Qualcomm. But small businesses are particularly vulnerable.

“Suddenly, there is a threat. Many organizations are rethinking their supply chains,” said Renaud Anjoran, CEO of Sofeast, a quality assurance and engineering company focused on the Chinese market. He said thousands of small and medium-sized factories there could close because of the shock.

“Unfortunately, this will impact our production and delivery,” said Janice Wang, CEO of Alvanon (New York), a Shanghai-based consultancy for retailers and apparel manufacturers including Under Armour. “We expect our paid goods to be delayed by four weeks,” she said.

China has extended the Lunar New Year holiday by three days and kept most businesses closed afterward to curb the spread of the virus. Many factories are expected to reopen on Monday (February 10), although it is unclear how many will be able to. Many workers are still unable to leave their hometowns to return to work, while employers are still paying wages. Factories that reopen may be less productive due to the lack of workers.

German automaker Volkswagen AG has pushed back the resumption of production at some plants to Feb. 17, citing challenges in the supply chain and ensuring the safety of factory workers, who face limited travel options.

“If a few key suppliers suddenly shut down, or are months behind on deliveries, that’s a mortal threat to a business,” Anjoran said, adding that an additional 10% tariff would still be less onerous than the current situation.

Domestic freight in China is adding four to five hours to each journey as 18-wheelers get stuck at temperature checkpoints, according to DHL’s Resilience360 risk analytics platform. Air and sea freight are also being affected. More than a dozen countries have suspended flights to and from China since the outbreak began. Shipping lines have also grounded operations. Carrier CMA CGM SA said it has canceled shipments to Chinese ports.

Terry Newman, general manager of a flooring company in the eastern city of Huzhou, is uncertain about how cargo will be transported. He has not yet set a date to reopen his factory because he is struggling to find enough masks for his 25 employees. Masks have become mandatory in some parts of China.

Businesses in and around Wuhan were the first to be affected by the outbreak, including factories for Hyundai and Hitachi. Then the impact spread across the country, with supply chains starting to be affected.

China’s increasingly integrated global economy over the past two decades has driven an 11-fold increase in exports to $2.7 trillion in 2018, since 2000. Over the same period, the world economy expanded 2.6-fold. As a result, the world is now more dependent on China than ever for critical goods and services, compounding the impact of the coronavirus on the global economy.

Agilian Technology, based in Dongguan, southern China, told customers that production would be affected at least this month and likely next. Of his 80 employees, he expects 15 to return to work this week, if the factory is allowed to reopen. That number could increase to about 30 after that.

“Our business plan takes into account risks like fires but not this kind of national shutdown,” he said, adding that the combination of rising costs and production risks could make him consider leaving China.

“Last year, we felt pressure to move to another country. We definitely felt more pressure to do that in 2020,” he said.