The Covid-19 pandemic is a health crisis with significant social and economic ramifications. In mid-2020, the World Free Zones Organisation held conversations with global experts and specialists that allowed us to draw important conclusions on the way businesses can cope, and even thrive, in this disrupted economic environment. Here are the findings.
1. Invest in digital
Across all industries, investment in digital transaction technology, digital communication systems and digital tracking solutions is the recurring theme. With blockchain emerging as a solid technology to securely store and share sensitive information, all the elements are here for digital conversion to take place at entire industry levels. Companies already ahead in their digital transformation have fared far better through this crisis than those with outdated systems or a lack of digital know-how. This has been particularly true in the energy and logistics sectors, but also in more forward-thinking industries such as healthcare or aviation.
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Digital investments can also strengthen cybersecurity within a company’s infrastructure while preserving, or even enhancing, access to the protected data. The roll out of digital payment systems for mobile platforms has also offered parallel ways to bank and do business. This has enabled many workers in the informal sector, which account for 60% of the global workforce, to join the formal economy. Converting operations to modern digital systems will enable companies to face change and disruption better, creating resilience and agility.
2. Manage risk through data
Switching to digital provides the right environment to measure risk in real time and in fine, granular detail. Data metrics are now lighting the way towards efficiency, smart decision-making and automated processes to move away from reliance on direct human labour. Detailed scenario modelling can offer reactive solutions to market disruption, particularly when using rich, widely tracked data. This means generating your own data through proprietary digital systems, but also gathering public data for your industry, markets and customers. By blending these sources together, a clearer picture of your business activity will emerge.
Companies already ahead in their digital transformation have fared far better through this crisis than those with outdated systems or a lack of digital know-how.
Finance firms have been investing in data tracking for risk management for a long time, being in the front line of the metrics themselves. Other sectors such as aviation and tech were already in that game, using data for forecasting demand. More conservative segments such as automotive, healthcare and logistics need to invest in risk management systems that incorporate more data from more sources. This will let them accurately model trends and provide valuable early-warning signs of problems in their operations.
3. Manage cash for uncertainty
Liquidity meant the difference between survival and collapse during the early stages of the crisis. Cash-rich companies not only kept their employees on the payroll and their business running, they also had the opportunity to consolidate their market position by acquiring weaker peers. This was no accident. While some of those companies operate in a high-margin industry such as consumer electronics, others were simply better at keeping cash reserves on hand for such perilous times.
Since uncertainty is unlikely to decrease going forward, managing cash will require a new strategy. This may affect dividend policy and thus shareholder trust. However, a stronger balance sheet will compensate for thinner distributed cash flow. Liquidity needs to be generated by switching from overdrafts to low-interest loans where available, keeping cash balances invested in remunerated yet liquid assets such as financial instruments, negotiating better payments terms from suppliers, and offering shorter payment horizons for customers. Managing inventory can also free up cash by reducing stock purchases. These can in turn be better managed with wider access to demand and supply data. With tighter reins on cash, a company can build resilience in the face of uncertainty.
4. Rebuild for disruption
Companies will transition from designing for efficiency to designing for resilience. New leadership must emerge from this crisis, prepared to manage constant change. This means regular training and reskilling for staff so they may stay abreast of the latest trends and tools. It requires building cash reserves to allow the business to seize opportunities as they present themselves or to entrench itself in the face of another crisis. It means threading agility in inventory management systems, in supply chains, and in distribution channels, using multiple procurement sources in both goods and personnel. Efficient transport networks, offering alternative transit lanes, will contribute to resilience in the face of disruption. Most of all, it means changing the culture of a business so that every layer of management and employees thinks and acts with disruption as its baseline. Companies that follow this strategy will thrive in an unstable environment as much as in a quiet one.
5. Create hygiene value chains
With protective measures and social distancing rapidly adopted around the world, hygiene has become an important value for companies to showcase to their customers, partners and stakeholders. This concern over hygiene is likely to continue beyond the pandemic. Contactless transactions will become essential for retail operations. Tracking hygiene measures from manufacturing to packaging, storage, then through to road/sea/air transport and delivery will also ensure customers identify products as reliably hygienic.
Demonstrating compliance with new international hygiene standards and regulation will enable companies to differentiate themselves from peers. Using biometric data to identify customer preferences and prepare ahead for a frictionless, contactless transaction will let service companies stand out. Most of all, ensuring that all participants in an industry value chain, along the entire customer journey, adhere to the same hygiene standards (from taxi to airport check-in to customs to boarding to flying, for example) will create a feeling of safety and value for all stakeholders.
6. Collaborate, don’t compete
It became evident early on in this global emergency that working together was the way to survive. Partnerships between companies, either within the same industry (aviation, healthcare, finance, logistics and transport) or across sectors (automotive, tech, manufacturing, shipping, logistics, healthcare) propped up entire segments of the economy. Shared resources enabled many to survive, and many more to even thrive, leading markets to consider partnerships, and the collaboration they breed, as the path to follow to rebuild the economy around shared ecosystems. Public-private partnerships also helped governments to incorporate skills and knowledge from the private sector into regulation and projects for the public good. Such partnerships between the public and private sector have also enabled progress towards more sustainable business solutions.
Partnerships, particularly in the pandemic environment, rely on two elements: transparency and trust. Transparency ensures that all parties involved provide and obtain the right kind of resources for the partnership to be mutually beneficial. Trust allows partners to act in good faith even beyond the limits of the partnership, knowing that their association will hold firm and support their needs. This was most noticeable in the healthcare sector, which displayed tremendous willingness to share data, knowledge, even assets to build and distribute emergency products such as respirators and masks. Pharmaceutical companies showed equal openness to share resources in a race to create a vaccine, all while respecting each other’s key value-added dimensions and intellectual property.
7. Add local value globally
Global supply chains were immediately impacted as lockdowns and closed borders obstructed international trade. Most companies sought to tighten their supply chains by onshoring some of their supply sources, often at great cost and with expedited urgency. What many did not consider was how such choices would impact local economies.
Global value chains will change but not disappear. What will evolve is the way local companies will be able to inject value back into their domestic economies by being part of larger international supply chains. This will also be enhanced by the disappearance of brokers and middlemen as digital platforms connect buyers to sellers directly across industries.
Specifically, in free zones, many companies will be able to generate value for host economies through wider access to global value chains combined with business relationships with local companies. Agile logistics to connect zones and markets to each other, particularly in transport collaborations between road, sea and air, will deliver resilience across entire networks. Properly serving the first or last mile in a logistical transaction will become even more essential. Hyper-specialisation within supply chains should be replaced with agile concentration, dominated by nimble small and medium-sized enterprises that can quickly adapt to serve different needs from different international customers. This will increase the depth of local skill sets, the collaboration between suppliers across value chains, and the number of local companies serving similar sectors. In turn, the quality of the products and services procured will increase through deeper expertise and knowledge transfer. This can only happen as companies rebuild their global supply chains for resilience by casting a wider net of local suppliers and partners to support their operations.
8. Restructure for inclusivity
We must take advantage of this pandemic disruption to restructure our industries to be more inclusive. This means enabling more businesses and individuals to enter the digital trading environment, to change informal conduits into formal channels, and to design regulation that does not exclude segments of its intended target population. This requires many different parties working in concert, across both public and private sectors and at local, national and global levels. In fact, each contribution can yield advantages to all stakeholders.
Spreading simple and affordable digital solutions requires investment but is likely to unlock a new layer of customers, partners, staff or suppliers. Bringing informal businesses into the formal sector increases opportunities for collaboration, raises quality, opens new markets and creates a new layer of fiscal revenue for governments. Even developing markets incorporated into an already dynamic sector will open access to new demand, new supply, and most of all will raise the quality of life for all parties involved, monetarily or otherwise. Investing in inclusivity is a win-win proposition.
9. Focus on renewable energy and the UN’s SDGs
The disruption driven by Covid-19 is an opportunity to restructure the energy sector and shift renewables to the top of strategic energy sources. More than 600 million Africans lack basic access to electricity. Meanwhile, the collapsed oil prices affect 40% of African exports and 7.4% of the continent’s GDP. New energy solutions must be unlocked for Africa, as well as other developing economies. Many developed countries already enjoy a large portion of renewable energy in their energy supply portfolio. Enhancing investment in renewable energy builds a more inclusive energy economy that will benefit developed economies as well as developing ones. Such investment will drive the adoption of novel solutions, expand the market and nurture more innovation. The UN’s Sustainable Development Goals provide a solid framework for this shift in focus, both for governments and companies moving in that direction.
10. Focus on ESG
Economic, social and corporate governance (ESG) is now an important variable for investors and customers globally. Greater focus on climate change and clean energy drove the downward trend in oil and gas stocks. Younger customers are now paying more attention to the ESG metrics of companies that provide their products and services, such as banks and non-essential consumer goods manufacturers. Moreover, ESG metrics also capture inclusivity data, providing a clear window for management and stakeholders into a company’s social impact on its markets. By embracing ESG as a key set of metrics to guide its commercial course, a company can demonstrate principles, purpose and profits. ESG can promote a company’s transparency and accountability, driven by a strong corporate image of fairness and clean transactional intent, all while delivering solid returns to its shareholders.
11. Communicate more often, widely, clearly and transparently
From collaboration to inclusivity, and transparency to regulation, communication is the one tool that needs to remain sharp at all times. It is how collaborators will understand the benefits of a partnership. It is how customers will recognise a company’s responsible choices. It is also how governments will learn what rules work best and which frameworks are lacking. With more data available to support decisions and clarify strategies, communication becomes increasingly scientific.
As markets become crowded, communicating will ensure that your brand stands out, particularly by demonstrating solid ESG credentials. Liaising regularly with suppliers will weigh more in pricing negotiations, while customers will appreciate a deeper level of engagement. Stakeholders will be more lenient with management that shares more details on operational decisions, and governments will reward transparency. As changes are required internally to adapt to shifting conditions, fluid communication will also help departments and staff understand what is required of them. Clear communication is essential to deliver proper training and reskilling. In short, adopting efficient and effective communication will help a company at every step on its path to success.
As we all begin to emerge from this pandemic context, we have the opportunity to rebuild a new economy, more inclusive, more resilient, fairer, and more efficient for all of us. Free zones in particular have an important role to play as enablers of new business models, as conduits to foreign investment, and as engines of innovation. There is room for profit as well as collaboration. There are ways to transact ethically where all parties benefit. By applying the above takeaways, we believe all companies can contribute to a better global system and deliver a truly new world model for the future of industry.
Feature photo by Jeff J Mitchell/Getty Images.
Dr Samir Hamrouni is CEO of the World Free Zones Organization, an international non-profit representing the interests of free zones globally.