(This blog was coauthored by Han Bao, senior research associate.)
We have already seen an economic slowdown in China in 2019. The national reforms to move from rapid growth to quality growth and the trade war between the US and China have both played an important role in it. Now, we have to take one more negative factor, a BIG one, into consideration: COVID-19. The massive efforts that China is undertaking to contain the spread of the coronavirus are having significant consequences on China’s economy and organizations. For example, China’s purchasing managers’ index dropped to 35.7 in February; all indices, from orders to production, have decreased significantly. The number of flight passengers dropped by 77%, and airline business may decline for the first time since 1990. Firms providing offline services in segments such as hotel, retail, entertainment, and catering are encountering a business operations crisis. Therefore, we are revising our China tech market forecast for 2020 downward to reflect a more accurate view.
In the baseline scenario, we predict that tech spending will drop by 2% in the first quarter and resume in Q2 and reach around 7–8% in the first half of the year. The full-year growth rate will return to 4.5%, slightly lower than the forecast of 6.6% we made in January, assuming the epidemic doesn’t worsen much further. Given how China interconnects with the global business ecosystem and how other countries’ economies are being impacted by COVID-19, we have also provided a pessimistic scenario about tech spending in China: It will go down by 6% in the first quarter and start to pick up in Q2 and the second half of the year, reaching 2.3% growth for the full year (see figure below).
Adaptiveness will be the key word in terms of how companies cope with uncertainty and surviving COVID-19 and incidents/crises alike in the future. Companies should bring adaptiveness on their radar and focus on improving it in the following three areas to turn uncertainty into business opportunity:
- Market adaptiveness. The COVID-19 outbreak is rapidly changing consumer behaviors and enterprise needs. Companies should start with market adaptiveness — listen to the market, and collect real-time data about customers and operations so as to better understand both customers and employees and to be able to address fast-changing business requirements in a timely manner.
- Technology adaptiveness. To be able to constantly adapt to and grow along with customer needs, companies need to build the technology capabilities needed for sustainable support. On one hand, they need to build technology platforms in the cloud to establish digital ecosystems and enable end-to-end agility; on the other hand, they need to invest in emerging tech like AI and blockchain that deliver the exponential value of digital innovation.
- Organization adaptiveness. This is the backbone that allows enterprises to proactively respond to changing market conditions. Leveraging technologies such as collaboration platforms and robotic process automation will empower, inspire, and enable effective employees. To boost morale and increase productivity among employees, companies should also revisit their staffing strategy, offering incentives to employees and giving them flexibility in sourcing gig or contingent workers.
We are expecting that the pandemic will still last a while but pass eventually. As for now, we all need and have to equip ourselves with the right mindsets and capabilities and act quickly to survive these uncertain times. If you have stories about how your company is being adaptive during this crisis, we’d love to hear! You can also refer to my latest research, “Build An Adaptive Enterprise To Survive Uncertainty,” to learn about how Chinese companies are building adaptive enterprises.