Technology and the COVID-19 pandemic
The Rafael del Pino Foundation organised, on 11 June 2020, the Master Conference live via www.frdelpino.es entitled "Technology and the COVID-19 pandemic" by Mauro F. Guillén.
Mauro F. Guillén is former Director of the Joseph H. Lauder Institute at the University of Pennsylvania, a research and teaching programme combining business administration and international relations, and Professor of International Management at the Wharton School, where he holds the Dr. Felix Zandman Chair. Trained as a sociologist and political economist, he has studied multinational companies and the globalisation process for twenty years. Among the many awards he has received, the IV Banco Herrero Foundation Prize for the best Spanish researcher in the social sciences under the age of 40 stands out.
On 11 June 2020, the Rafael del Pino Foundation organised a conference by Mauro F. Guillén, Professor of International Business Management at the Wharton School, entitled "Technology and the COVID-19 pandemic.
Professor Guillén commented that many experts, as well as the media, have started to create myths about this pandemic. They talk about the end of commuting, the extinction of retail and the collapse of globalisation, but these are myths. But these are myths. What has happened in this crisis?
Looking at the evolution of consumer confidence during the crisis, there was a very sudden drop in consumer confidence in both the United States and China in the aftermath of the pandemic. In recent weeks, however, there has been a slight upturn in the United States. In China there seems to have been a slight upturn as well, but then a relapse. But what is remarkable is that, even at its lowest point, it did not reach the levels that were reached twelve years ago during the global financial crisis, or five years ago when China suffered certain vicissitudes. This time it has not fallen as much. In the European Union and Japan there was also a fall and some recovery in the last two weeks, but, in these two cases, the fall has been similar to what happened in 2008 and, in Europe, in 2012 during the sovereign debt crisis.
How can this behaviour in the United States and China be explained? One argument is that the government and central banks have acted very quickly. But there is also another hypothesis, which is that something had changed in consumer behaviour prior to the pandemic, and perhaps e-commerce had something to do with it. Consumers have been able to continue to consume and workers have been able to continue to work from home thanks to technology.
To what extent is technology going to change how companies operate both internally and externally? There are four major themes that will involve four major areas of action within companies and in their relationships with customers and suppliers. These trends will continue beyond the pandemic and relate to the enterprise supply chain, business automation, remote working and digital commerce.
A survey of US corporate CFOs, who know what is going on in the company, said at the start of the pandemic that job security needs to be changed, the workplace needs to be adjusted to accommodate social distancing, and alternative work shifts may need to be introduced. When asked whether there will be more emphasis on remote working after the pandemic, almost half of the respondents think that it will be a permanent option. 40% think that trends towards automation and new ways of working will continue. Almost a third think there will also be a significant impact on building utilisation.
Regarding supply chains, 71% have seen a decrease in production volume, 60% report transport delays between different segments and 49% indicate that there have been delays from the time the product enters the port to the time it reaches consumers. 42% of respondents say that value chains will change as a result of this crisis and 29% think that they are likely to do so.
What kind of investments will be needed in the future? 26% of respondents believe that investments in assets will be needed, 33% in employees, to reposition some and hire others, and 67% in technology along the supply chain.
This pandemic has exposed some of the basic problems that existed with value chains. Businesses therefore see opportunities to make them more efficient, more resilient to external shocks such as this pandemic.
What will happen to value chains? It is going to mean a partial abandonment of the just in time principle. We are going to move towards the just in case principle, the just in case principle. There will be more inventories, companies will seek a new balance between efficiency and resilience to major disruptions. This crisis will accelerate this trade-off, but it is not new. There are two recent historical precedents.
The first was in 2011, with the tsunami in Japan, which caused a collapse of supply chains in Japan. Companies were forced to stop production. Weeks later, the shutdown manifested itself in the United States, Europe and other Asian countries. Many companies started to rethink their value chains, which should be more diversified and shorter in geographical distance. This situation affected the automotive industry, but not much in other sectors. In 2018-19 came the trade war between the United States and China. In some categories of goods, China manufactures 50% of the world's production. But the imposition of tariffs raises costs. This invites companies to rethink their strategies, but there was no return of these activities to the US, but rather a diversion to other industrial manufacturing locations. The biggest beneficiary was Taiwan, followed by Vietnam, Mexico and other Eastern European countries. In these episodes, companies learned that value chains exposed to all kinds of risks.
We also see a greater use of technology. There is going to be more investment in warehouse automation. This pandemic creates very strong incentives for automation. It's going to affect the service sector and it's going to continue in the industrial sector. The big new frontier of automation is going to manifest itself in the service sector, which has been hit hard by confinement and distancing measures, which are going to have to be maintained for several months or years. There is also a focus on white-collar jobs, where automation is going to continue upwards and intensify in the wake of this crisis.
As far as remote work is concerned, before COVID-19, 37% of jobs in the United States could be performed remotely. Some 3% of workers worked remotely. In Scandinavian countries it was as high as 23% of the employed population. During COVID, telework has grown very rapidly in the US, although it is likely to decline later, especially as working from home is not ideal for achieving company goals, but it will not fall to the level of 3%. The ceiling of 37% will gradually shatter upwards. The company will restructure or eliminate jobs to create jobs that can be performed remotely. The workplace in 84% of the cases is the home. 8% go to co-working spaces close to home and 4% telework from the bar. Some experts believe that co-working will grow because people will go to these places, but others believe that it will not work in a world with social distancing norms.
There is a distinction to be made between remote work and smart work. Remote working is simply finding an alternative place to work, while smart working is about reinventing the way you work. The trend in companies is to combine the two locations and to think of virtual work teams that can be in different locations around the world. This would be ideal, as long as it is advantageous for the company and the employee. The third trend is how we can use digital tools to increase productivity and creativity. Some studies suggest that productivity does not increase with teleworking, which is not good from a competitiveness point of view.
In the first weeks of confinement we have seen a very accelerated growth of platforms that allow us to learn remotely, of digital platforms for gaming, of e-commerce. Technologies such as artificial intelligence, blockchain, virtual reality, 3-D printing, etc. are more interesting for companies than before the crisis. The pandemic will accelerate their deployment. This can be seen in the following examples.
Shopify competes with Amazon, but concentrates on being an area where other companies can advertise their products and services. During the crisis, Amazon's share price grew more than the Nasdaq, but Shopify's did so even more because it realised a niche market of less than 25 kilometres distance that could be exploited. In the pandemic, trade was completely blocked unless it was essential. Shopify creates a showcase of products and services on its platform and helps businesses ship, receive payments, manage e-commerce. This model is going to transform into a mixed model. Shops will reopen, but will retain the digital channel.
Another example is Spotify. A pandemic like the current one should generate an increase in demand for it. It has benefited from a very high increase in the number of users, but it has also had a problem. Advertising revenues have fallen dramatically in this crisis. The company has been forced to try to increase the conversion rate from free to paying users, for example by attracting them with podcasts. The pandemic is an opportunity for Spotify to reinvent itself with its own content.
Airbnb's business has collapsed. During the pandemic, their priority has been to keep hosts connected to the platform by organising online events, where hosts can do things, give webinars, etc. This allows the hosts to have some kind of income and Airbnb allows it to maintain the relationship with the hosts. It allows it to transform from an intermediary that charges a commission to a lifestyle platform.
Inditex's sales fell 44% in the pandemic. This represents an opportunity for it to continue to grow its online business. A 14% of online sales is not enough. They will close up to 1,200 shops, to accelerate their omnichannel strategy. The pandemic is an opportunity to grow online.
The New York Times before the pandemic had a significant decline in advertising revenue. The conversion rate from print to digital was 3.5%. With five million subscribers, the print edition still accounted for half of total subscription and advertising revenue. In the pandemic there were more paying subscribers to the platform, but there was a huge drop in advertising revenue in print and on the digital platform. This is an opportunity to accelerate the digital transformation of the newspaper.
Companies are therefore going to accelerate certain types of investments, they are going to deepen certain types of strategies that they should have been adopting before the crisis.
The Rafael del Pino Foundation is not responsible for the comments, opinions or statements made by the people who participate in its activities and which are expressed as a result of their inalienable right to freedom of expression and under their sole responsibility. The contents included in the summary of this conference, written for the Rafael del Pino Foundation by Professor Emilio González, are the result of the debates held at the meeting held for this purpose at the Foundation and are the responsibility of the authors.
The Rafael del Pino Foundation is not responsible for any comments, opinions or statements made by third parties. In this respect, the FRP is not obliged to monitor the views expressed by such third parties who participate in its activities and which are expressed as a result of their inalienable right to freedom of expression and under their own responsibility. The contents included in the summary of this conference, written for the Rafael del Pino Foundation by Professor Emilio J. González, are the result of the discussions that took place during the conference organised for this purpose at the Foundation and are the sole responsibility of its authors.