Multinational Companies Reliant On Chinese Goods Disrupted By New Coronavirus
MARY LOUISE KELLY, HOST:
Some of the world's most recognizable brands are feeling the fallout from the coronavirus outbreak in China. The virus has sickened nearly 75,000 people there. It has also temporarily crippled the world's second-largest economy and caused headaches for global companies such as Adidas and Procter & Gamble. While there are some encouraging signs the outbreak is spreading more slowly, no one can say for certain when it will be under control. NPR's Scott Horsley reports.
SCOTT HORSLEY, BYLINE: The coronavirus outbreak has delivered a one-two punch to Apple, temporarily shuttering both factories and retail stores in China. Apple warned investors it will miss its sales targets for the quarter. Linn Huang, who's with the research firm IDC, says a lot of other technology hardware companies will likely suffer a similar hit because they depend on suppliers located near the epicenter of the epidemic.
LINN HUANG: If we think about Wuhan and the Hubei province itself, there's a lot of critical display and panels that are used in things from phones all the way up to notebooks. So the device end of the technology sector is expected to be hit hard by the disruptions along the supply chain.
HORSLEY: There's still no telling how long the coronavirus outbreak will last, but Huang says even in the best-case scenario, many businesses will be looking at a months-long recovery.
HUANG: We've already lost a significant amount of production behind us. And given the slow trickle of manufacturing, of labor, of logistics ramping back up, we expect more loss into Q2.
HORSLEY: Nike, which does a lot of business in China, won't report its earnings for another month or so. But Adidas and Puma said this week their operations in the country have been disrupted. Steve Lamar, who heads the American Apparel & Footwear Association, is not surprised.
STEVE LAMAR: China is both an important supplier as well as an important retail market.
HORSLEY: Adidas said its sales in China have fallen about 85% since the Lunar New Year. Lamar says Chinese customers might still be ordering online during the outbreak, but that's about it.
LAMAR: Some stores are closed. Other stores are open. But, you know, not many people are venturing out.
HORSLEY: Lamar says one saving grace is clothing and shoe manufacturers have already stockpiled merchandise for spring and early summer, so they have a bit more of a cushion than they otherwise might. Ordinarily, they'd be producing products for the late summer and back-to-school seasons now, so the challenges his members are facing with production won't be visible right away.
LAMAR: Some of them still are reporting factories that are being closed or not allowed to open. Many of them are reporting the factories are open but they're not necessarily at full capacity.
HORSLEY: American automakers have also begun restarting their plants in China over the last 10 days. So far, they say, assembly plants in the U.S. have not suffered any shortage of parts from China. But General Motors, Ford and Fiat Chrysler all say they're monitoring the situation closely. With much of the country under quarantine in recent weeks, getting products in and out of China remains challenging. CEO Noel White of Tyson Foods told analysts this week China wants to buy a lot more pork from the U.S., but shipments have been delayed by traffic tie-ups at Chinese ports.
NOEL WHITE: What I'd tell you today is probably going to be different tomorrow, which is different than yesterday, because it literally changes on a daily basis.
HORSLEY: That kind of uncertainty is never good for business. Economist Sung Won Sohn of Loyola Marymount University says the virus outbreak, like the trade war, is causing some U.S. companies to rethink their reliance on Chinese suppliers.
SUNG WON SOHN: This will accelerate the fracturing and shifting of the supply chain from China to the rest of the world.
HORSLEY: But while there may be value in having multiple suppliers in more than one country, Sohn says that insurance policy is likely to come with extra costs - one more lasting price tag of the coronavirus epidemic.
Scott Horsley, NPR News, Washington.
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