COVID-19 has resulted in a paradigm shift in the way business will be conducted going forward. We believe there will be incremental focus on improving hygiene and sanitation not only at the work place but also at airports, entertainment zones, restaurants, etc. In addition, businesses will have to create standard operating procedures (SOPs) and necessary infrastructure to build consumer confidence and increase footfalls, once the economy opens up. Facility Management, as a sector, is at the forefront of this and likely to be one of the key beneficiaries.

Having said that, the businesses operating in this sector will have to initiate new measures to adapt to this new ‘normal’. One of the foremost developments will be adoption of technology and reduction of people’s touch. This will not only improve efficiency but also reduce dependence on manual labor. Besides, companies will have to invest in training and skill development to ensure smooth transition and technology adaptation. Although, the Company will have to incur initial capex but the return on investment (RoI) is expected to be incrementally better in the medium to long-run.

We further believe smaller companies with limited capital may not be able to compete with larger players in this new normal, which might result in M&A / consolidation.

The process of globalisation was already in retreat-it is being referred as ‘slowbalisation’. With this pandemic, vulnerability that global economic interdependence creates on supply chain has been recognised. The Governments have already started to give incentives to push local manufacturing and job creation to kick-start the revival of their economies. On the other hand, companies will be looking at countries like India to move their low cost base.

In the post COVID19 era, countries will reconfigure their economies to look at the perils and pitfalls of overdependence on cheap import. We believe production of intermediates to some extent, final goods to a large extent and essentials completely will move back to their region but production of basic and intermediate goods to a large extent will remain in low cost countries.

The result will be increased investments in ‘consumer’ economies by local and global companies. This in our view will lead to spurt in increase in M&A/investment in consumer economies and low cost countries (ex China) by MNCs. Are you ready for the post Covid19 era???

Globally, India is the 6th largest producer of chemicals and contributes 3.4% to the global chemicals industry. In terms of size, the Indian Chemicals industry is valued at ~$165bn and expected to grow at a CAGR of ~9% for next 5-7 years.

China, one of the largest manufacturers of chemicals globally, is struggling with pollution related issues which has resulted in shutdown of factories across the country. This coupled with rising manufacturing cost has created a vacuum and opened a window of opportunity for India.

To draw a parallel with the chemicals industry, India lost a massive opportunity, primarily to Bangladesh and Vietnam, for manufacturing ready-made garments (RMG) for global consumption. This can be attributed to lack of supportive policies and measures by the Government of India as well as inability of the stakeholders to capitalize and capture this billion dollar market. RMG has revolutionized and is the major driving force behind Bangladesh’s economy. To put numbers in perspective, RMG accounted for 10% of Bangladesh’s total GDP in 2004-05 and currently accounts for more than 15% of the total GDP. In addition, RMG exports currently contributes ~80% to the Country’s total exports.

We believe the Chemicals industry is at a similar inflection point and knocking on the doors of India.

In our opinion, the Chemicals industry in India is favorably positioned to seize this multi-billion dollar opportunity and needs to focus on the following important pillars:

1.      Invest in human capital and skill development

2.      Innovate and focus on R&D to gain competitive advantage

3.      Upgrade technology to achieve efficiencies and control cost of manufacturing. Also, environmental compliance is critical to avoid a China-like situation

4.      Consolidate to achieve economies of scale. Risk of stagnancy or going out of business will be higher with status quo

5.      Regulate:

a.      Government of India will have to create multiple Petroleum, Chemicals and Petrochemicals Investment Region (PCPIRs), similar to Dahej PCPIR, to leverage benefits of common resources and support services resulting in better cost economics.

b.      Secondly, India will have to build robust infrastructure to support domestic and international movement of goods.

c.      Lastly and more importantly, the Government of India will have to introduce investor friendly policies and environment to attract FDI in the Chemicals sector.

Is India ready? Will we grab this opportunity or miss the bus?

The lockdown has created a forced WFH for most of us from sectors where it has never happened before. Folks from service industry like IT, where WFH is part of organizational DNA, will agree that it’s a habit that many others will develop in time. Other service sectors and support functions should look up to best practices followed by them.

The question then arises – Would this disrupt the workplace and accelerate the transition to WFH? Would corporates make WFH a new normal as they are already looking for cost cutting avenues? Would people have homes with dedicated workspace?

We are now realizing how effectively we can work with various collaboration tools and video conferencing. Travel time, especially in the metros is saved drastically, traffic situation is improved, carbon footprint is reduced and work-life balance gets better. Naturally, there is a flip side to it like lack of face-to-face interaction/mentoring, team bonding, etc. One needs to strike a balance as per their work demands.

In the post COVID-19 era, WFH would probably not feel as difficult as it does today when the rest of the world is functional as before.

The coronavirus has curtailed the movements of people across the globe… Borders have already been shut down to stop its further diffusion… Trade and investment has come to a halt… Virtual meetings has become the new norm…

In the post COVID19 era, firstly, the host countries will likely make the visa norms stricter for persons traveling from the most affected countries. Besides thermal scanners, it is likely that there may be other medicals checkups at the airports. Secondly, individuals themselves will be apprehensive in taking up international travel. The biggest fear being quarantined because of airport checkups. Thirdly, the business travel will require a higher compelling threshold to make physical travel than was earlier because most are (forcibly) finding out that we can hold meetings virtually as well.

All this would also require global companies to have their base/represntative locally for swiftly grabbing business opportunities. On the other hand the unquantifiable damage of all this being reduced personal interaction and cultural exchange between countries.

In the aftermath of COVID-19, companies around the world are likely to transform strategies around sourcing and production of intermediates and final goods. There will be incremental ‘domestic’ production and sourcing of intermediates and final goods to limit the extent of disruption and promote local economies; although the possibility of a complete shift looks practically difficult. This will further allow companies to return to normalcy after a similar disruption in future in a relatively quicker time frame. Thus, it is likely to reduce cross-border trade.

The result will be new / incremental investments in ‘consumer’ economies by both local and global companies. This in our view will lead to spurt in increase in M&As / JVs / investments in consumer-driven economies by global MNCs.

Manufacturing expertise have been built over decades involving technology, expertise, resource utilisation and scale. For example: Mobiles in China, Apparels in south Asia and so on.

In the post COVID 19 Era, countries will want to encourage local manufacturing in order to boost their own economies. There already are calls on social media for buying locally, holiday locally, etc. Same thing may happen to support local production.

While simple items may get manufactured locally in short term, manufacturing involving complex technologies may not move out of their current clusters in the near future. Governments will come out with incentives for this to move to consumer countries. For this to be localized in medium term, technology, expertise and capital will have to be transferred from their current hubs to the local regions. This in our view will present several opportunities for cross border investments, Mergers & Acquisitions, Joint Ventures and collaborations.

COVID19 is about to rewrite the fundamental principles of Globalisation. The cumulative impact is so huge that another Post COVID19 Era will be added in the future books of Economics. The world is going to change and many of those changes would be irreversible.

With the world entering a new era, will Globalisation as we have known operate under new rules??? Will manufacturing be Localised??? Will movement of people may be limited??? Will sourcing be reshaped??? Will cross-border investment increase???

Keep watching this space for our views on how the world is going to change…