Shanghai’s Flu Epidemic: Is Your Business at Risk?

The picture was eerily familiar to many in Asia. On 5 April, the Shanghai government ordered the closure of the Huhuai market and the culling of more than 20,000 birds after some pigeons were found to have the H7N9 virus. The photograph that was flashed around the world showed sanitation workers with mounds of bagged poultry in the wet market, looking like white-suited masked doctors in a night-lit apocalyptic world.
 
There were similar images in Hong Kong in 1997, when 1.5 million live chickens were destroyed because of the H5N1 virus, which killed six people. The deaths in Shanghai – five as of the latest count – also evoked the 2003 outbreak of the disease known as Severe Acute Respiratory Syndrome (SARS) that killed nearly 800 people worldwide, many in China, Hong Kong and Singapore.
 
But the H7N9 virus (as is the H5N1 strain) is not as deadly as the SARS coronavirus. Avian flu viruses are not known to be transmitted through human contact. The various precautionary measures undertaken in Hong Kong in 1997 and subsequent years, including another culling of chickens in 2011, succeeded in averting a full-scale outbreak.
 
And unlike the SARS pandemic ten years ago, it seems medical and governmental authorities are more prepared and transparent this time around. “We are confident of dealing with this effectively,” Ma Xiaowei, a vice minister at the National Health and Family Planning Commission, told Bloomberg on 7 April. “We have adequate amount of anti-flu medicines, and we have also started to study the production of vaccines.”     
 
Maybe so, but as Asia’s CFOs learned in 2003, businesses must take early precautionary steps and must be ready to put contingency plans into effect. Finance chiefs must also monitor the impact on sales and earnings and mitigate the negative effects – while not forgetting that there may be opportunities as well, for example for makers of face masks and technology vendors whose products allow people to work from home.
 
Among the lessons for business from past pandemics that may become relevant today:
 
  • Formulating and firming up contingency plans
  • Using video-conferencing and other technologies to virtually meet with clients and suppliers
  • Keeping a larger-than-usual volume of ready cash
  • Re-examining sourcing strategies
  • Reducing production and services
  • Making sure to take advantage of new opportunities 
 
Don’t Panic
The first order of business, though, is not to panic. The H7N9 bird flu virus currently found in China is a new strain that is different from the SARS corona virus, which was transmitted from one human to another in 2003. Like the relatively few victims of the H5N1 virus, the fatalities in China seemed to have contracted the H7N9 virus from infected birds, not other humans.
 
Even if human-to-human transmission were to occur, the lessons of SARS will hopefully have forearmed the authorities in China and elsewhere. In hindsight, the way the SARS virus managed to spread almost like wildfire could have been prevented had the index cases and the environmental conditions been understood and handled better. 
 
Ironically, the enablers of the SARS epidemic were the hospitals themselves. The corona virus came to Hong Kong in February 2003 via a professor from Guangzhou, who had been treating patients with atypical pneumonia in a hospital in that Chinese city. Even though he was unwell, the professor travelled to Hong Kong and stayed at a local hotel, where seven other people on the same floor later contracted SARS.
 
The professor was admitted to a Hong Kong hospital, where he later died. Meanwhile, six of the infected hotel guests travelled on to Canada, Singapore and Vietnam, where they in turn passed on the virus to other people. The seventh person was a Hong Kong resident who was admitted to a teaching hospital in the city. This patient infected more than 100 medical and nursing personnel in that hospital.
 
As it happened, this teaching hospital was also treating a Shenzhen resident for chronic renal disease as an outpatient. This person, who later developed SARS symptoms, regularly visited a brother in a Hong Kong housing estate. He used the toilet on one such visit in March. His brother, sister-in-law and 327 other residents of the housing estate subsequently fell ill with SARS. The patient, brother and sister-in-law survived, but 42 people who lived in the housing estate died.
 
The means of transmission was traced to defective sanitary pipes, a state of affairs that has since been rectified. Other measures helped to stop the epidemic, including isolating people potentially exposed to the virus, cross-border health checks, use of masks and disinfectants, and educating the populace on the importance of frequent washing of hands.
 
In Hong Kong, the public health system was also overhauled and strengthened. Some hospitals were specifically designated as infectious-diseases institutions and equipped with the necessary isolation and other facilities (the teaching hospital where the Guangzhou professor was treated was not specifically equipped for infectious diseases).
 
The point in this recitation is that the SARS lessons appear to have been learned and the template it provided is seemingly being put in practice relatively diligently. The systematic culling of chickens has averted a full-scale H5N1 epidemic in 2011, for example, when Hong Kong destroyed 17,000 chickens, stopped the trade in live chickens for 21 days and temporarily banned imports from China.
 
Not Out of the Woods 
But a swine flu pandemic that started in Mexico in 2009 did cause more than 18,000 deaths over two years. The new strain of virus known as H1N1 is a combination of avian, swine and human flu viruses that got mixed in with a Eurasian pig flu virus and had the ability to be transmitted from person to person through respiratory droplets. Business was disrupted as Mexico closed public and private facilities and the US temporarily banned non-essential travel to and from the country. 
 
Today, some researchers are raising the alarm on a new “mystery” coronavirus that was first detected in the Middle East last year and has since caused 11 fatalities. The new SARS-like disease can lead to multiple organ failure. The observed mortality rate is a very high 56%; the fatality rate for the SARS virus was only 11%.
 
We are not, in other words, out of the woods by any means, despite the experience and expertise gained from past pandemics. For Asia’s companies, particularly CFOs, it makes sense to dust off contingency plans or draft one as part of the regular risk management review.
 
What Companies Can Do
The impact on businesses and how selected companies responded to pandemics suggest the following courses of action:
 
  • Formulate or firm up contingency plans. What if the authorities close public and private facilities as Mexico did in 2009? Are tools and processes in place that will allow employees to work from home temporarily? Should the use of surgical gloves and masks be required in the workplace, and if so, is there an adequate supply? Are there clear processes to communicate with employees through email, texting, mobile phone and other means?
 
  • Don’t stop communicating with clients, suppliers and other parties. If travel and face-to-face meetings become difficult, is there a way to continue doing business with partners? In 2003, some companies saw overseas clients stop visiting the factory floor to approve designs. It should be possible for these clients today to place orders and approve designs through video-conferencing – the technology has made advances since 2003, broadband bandwidth has improved significantly and prices have come down considerably. Investigate rentals and leases instead of outright ownership of video-conferencing facilities.
 
  • Keep a larger-than-usual volume of cash on hand. Asia’s companies are famous for keeping cash on the balance sheet. Liquidity can become a problem in a pandemic, so it will be useful to have more ready cash than usual. Reducing or stopping payment of dividends, slowing down capex programmes, freezing headcount and salaries and negotiating reductions or rebates with landlords are some of the ways companies buttressed their war chest in 2003.
 
  • Re-examine sourcing strategies. Some companies have already diversified their supply chains out of China to secondary locations such as Indonesia, the Philippines and Vietnam. Having factories and suppliers in a variety of countries will help ensure a steady flow of products in case of a pandemic. In 2003, companies also increased inventory levels to at least two months in case of unexpected closure of supply routes (which did not really happen).  
 
  • Be ready to cut production and services. This is particularly applicable to companies in travel, transportation, catering, accommodation and property, which were hard hit in 2003. Passenger demand at Cathay Pacific, for example, was halved to just between 8,000 to 11,000 travelers per day. Martin Cubbon, at that time Group CFO for Cathay’s parent company Swire Pacific, told CFO Asia magazine that his strategy was to reduce services, but only to the point where the network is not compromised. In practical terms, this meant keeping all routes open, but cancelling as many flights as possible.
 
  • Position the company to take advantage of new opportunities. It sounds churlish to think about profiting from a health epidemic, but companies will not be serving stakeholders as they should if they do not take steps to maximize profits – and also serve the needs and wants of customers. The enterprises that are obviously well-placed include makers of masks and disinfectants, pharmaceutical companies, computer makers (because employees and students may have to work and study from home) and broadband services providers. Companies that are not in these sectors can consider cultivating business-to-business relationships with these enterprises.
 
This Too Shall Pass  
The final lesson from 2003 and 2009 (and indeed of other calamities) is that the situation eventually stabilizes and things go back to business as usual. Companies should therefore plan to get back to normal as early as possible. When to lift the emergency measures and go back to normal should be part of the contingency planning – the determination can be based on pronouncements by health authorities, the World Health Organisation, the company’s own people on the ground and other sources.
 
Remember that even SARS in 2003 did not leave long-lasting negative effects on the economy. In China, for one, it cut GDP growth only by 0.5 of a percentage point on an annualized basis in the second quarter. Overall, GDP powered ahead 10.3% in 2003. Hong Kong grew 3% (from 1.8% in 2002) while Singapore’s GDP expanded 4.6% (from 4.2% in 2002).
 
Companies should not forget that there is life after a pandemic.
 
About the Author

Cesar Bacani is Editor-on-Chief of CFO Innovation.  

 

Photo credit: Chameleon/Shutterstock.com 

 

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