Global industry hampered as coronavirus epidemic spreads

Few industries have escaped the disruption caused by the spread of the coronavirus throughout China and beyond. From computer production slowed by factory shutdowns to the falloff in the Chinese hospitality industry as quarantines curtail travel, the impact of the epidemic has been significant, and the future damage remains uncertain. Effects have not been limited to Hubei province, where the virus began in December; for example, Chinatown restaurants in major cities throughout the United States and other western countries have suffered significant sales losses as customers shy away due to virus fears.

MIDDLE MARKET INSIGHT As the world prepares for a potential coronavirus pandemic, middle market businesses must close attention to their vendor relationships, and ensure alternative sources of supply.

Here are some industry data points gleaned by RSM analysts:

Apparel

• 40% of U.S. apparel is sourced in China.
• The proximity of apparel-producing provinces Guangdong and Zheijang to Hubei heightens the susceptibility of the sector to a prolonged break.
• Vietnam, Bangladesh and other predominant countries in the U.S. apparel supply chain rely on Chinese imported materials for production.
• Many apparel manufacturers in China rely on migrant workers who are hampered by travel restrictions.
• Small and midsize apparel companies lacking diversified supply chains are most at risk.

           –Peter Cadigan 

Hospitality

• Chinese nationals comprise the largest tourist market in the world; some 3 million visited the United States in 2018, according to the U.S. National Travel and Tourism Bureau.
• A sustained outbreak of the coronavirus poses a significant threat to this growing market, which has more than quadrupled since 2009.
• In the short-term, those hotel properties most affected by the virus outbreak are likely to be at the higher end of the market, as many Chinese travelers seek four- and five-star properties.

           –Laura Dietzel

Technology

• China supplies 21% of the world’s chips for PCs, servers and mobile phones.
• Nearly 17% of Apple’s revenue comes from China. The company said in mid-February that secondquarter sales were set to take a hit due to work slowdowns and temporary store closures in China, which has crimped demand; Apple is also suffering supply constraints.
• Escalating tariffs amid the U.S.-China trade war have already prompted tech companies like Samsung and Ericsson AB to shift technology to other countries in Southeast Asia.
• Spread of the coronavirus offers an additional incentive for supply chain diversification.

          –Victor Kao and Kurt Shenk