The first half of 2020, the world stopped. The Covid-19 pandemic, which began in China in December 2019, rapidly spread among the whole world, reaching almost 10 million cases and up to five hundred thousand deaths.(4) The WHO has declared a pandemic for the third time in history.
As the world was unprepared for such a crisis, entire countries went on lockdown, travel became limited, and factories stopped operating. Covid-19 has disrupted international business diplomacy unprecedentedly by impacting international relations and supply chains. The pandemic has also transformed the fundamental nature of business relations, shifting its platform to one that is increasingly virtual.
Covid-19 has changed the relationship between China and the rest of the world. After the pandemic outbreak in China, the global community blamed China for slow initial response and media control. Countries closed their borders to China and have witnessed the stigmatization of Asians by linking the virus to a particular ethnicity.(9) Even on a diplomatic level, governmental representatives showed hostility towards China. The US President Donald Trump called Covid-19 “the Chinese virus,” and Eduardo Bolosonaro, politician of Brazil, blamed the Chinese Communist Party for the pandemic. (3)
Furthermore, the worldwide lack of medical supplies such as diagnosis kits, which are crucial for effective response for the pandemic, shifted global diplomacy and relations as countries tried to meet this demand. Countries retreated from globalization by diverting medical supplies to themselves and blocking exports, even if it causes harm to allies and neighboring countries. The Chinese government effectively bought up medical supplies produced in China, blocked exports and imported supplies at the same time.(6) The Trump administration halted the trading of masks made by the US company 3M to Canada and Latin America.(10) Other countries took similar measures to secure medical equipment supply. Such breach in long-term trust relationships can extend to international business diplomacy where countries can easily break bonds when facing similar crises.
In addition to impacts on the medical sector, the most significant effect of Covid-19 on international business diplomacy is that it highlighted the vulnerabilities of having single/limited sources of the supply chain, potentially leading to corporations diversifying suppliers around the world. To secure sources or meet limited budgets, manufacturers often turn to single-sourcing, where only one producer provides a certain material. (11) However, single-sourcing is extremely fragile because if production is halted for only a single component, the whole supply chain can collapse. That is why car companies in Europe, which rely on MTA Advanced Automotive Solutions, are experiencing a crisis because the manufacturer had to shut down one of its plants in Italy due to lockdowns.(6) Furthermore, China makes up a third of manufacturing globally; when factories shut down in the world’s largest exporter of goods, the closures had extreme impacts.(7) For instance, Apple experienced a shortage of iPhone production because the Chinese sector of Foxconn, the company’s main manufacturer, shut down.(2)
To prevent such delays in the future, companies will seek to pull out from single-sourcing and diversify sources. When making contracts, businesses must carefully consider whether a country has adequate response systems for pandemics, including tracking methods, healthcare and local hygiene systems.(1) Countries with high rates of infectious disease or past records of pandemic outbreak will be at a disadvantage because it would be risky for businesses to invest into a country with a high possibility of shutting down. If a business has a producer in a disease-vulnerable country, it is important for the business to have a backup plan. Before Covid-19, only few companies such as General Motors have actively mapped their supply chains, engaging suppliers to understand having global sites and subcontractors.(11) Now that there was a major disruption that many companies were not ready to face, more companies will diversify their supply chain so that they can respond quickly to sudden disruptions by replacing suppliers. Thus, although Covid-19 did cause major losses, it is an opportunity for corporations to strengthen chains of production.
Finally, Covid-19 caused businesses to shift to virtual platforms. In the midst Covid-19, several important conferences, including the Mobile World Congress (MWC), the Facebook F8 developer conference, and the Global Marketing Summit were canceled.(2) These technology conferences would have allowed representatives to share innovations and establish long-term partnerships with other businesses and governments. Businesses have online alternatives, such as in Google’s Google Cloud Next event and IMB developer conference live stream. However, with the loss of casual encounters or personal informal gatherings, industries lost opportunities to share ideas and build new connections. (8)
In future pandemics, in-person gatherings will become more and more difficult. Therefore, it is important for businesses to utilize various online platforms for meetings and conferences. One challenge to overcome is the issue of privacy and security. The World Economic Forum reported that risk of cyberattacks and data fraud due to a shift in working patterns was the third most threatening factor to businesses during Covid-19.(8) This is evident in how the widely-used video conferencing app Zoom had multiple security issues, including sending user data to Facebook or allowing meeting hosts to track attendees.(12) Security concerns become more pertinent if important meetings where contracts are made and trade secrets are discussed are held online. Thus, the increasing demand for secure online communication services will accelerate the growth of the 5G technology and security industry. Competition between platforms such as Microsoft Teams, Cisco Webex, or Google Hangouts likely will stimulate improvements in both technical convenience and also digital security standards.(5)
Covid-19 could be called a disaster, but it also revealed the fragilities of business systems in the world, in terms of international relations, single-sourcing, and virtual platforms. Like what happened with Covid-19, in future pandemics, long-term positive relationships and alliances between countries will become harder. Businesses will seek to modify their supply chains, and also develop secure online platforms for communication. Although the world was not prepared for this global pandemic, this could be an opportunity for governments and businesses to prepare for similar abrupt challenges that could arise in the future.
(1)About the author(s) Matt Craven is a partner in McKinsey’s Silicon Valley office; Linda Liu is a partner in the New York office. “COVID-19: Implications for Business.” McKinsey & Company, McKinsey & Company, 24 July 2020, http://www.mckinsey.com/business-functions/risk/our-insights/covid-19-implications-for-business.
(2)“The Biggest Business Impacts of the Coronavirus Pandemic.” EMarketer, 14 Mar. 2020, http://www.emarketer.com/content/the-biggest-business-impacts-of-the-coronavirus-pandemic-according-to-business-insider-intelligence.
(3)“Bolsonaro’s Son Enrages Beijing by Blaming China for Coronavirus Crisis.” The Guardian, Guardian News and Media, 19 Mar. 2020, http://www.theguardian.com/world/2020/mar/19/coronavirus-bolsonaro-son-china-row.
(4)“Coronavirus Cases:” Worldometer, http://www.worldometers.info/coronavirus/.
(5)“Driving Digital Transformation: Business after Covid-19.” AHK Hong Kong, hongkong.ahk.de/news/news-details/driving-digital-transformation-business-after-corona.
(6)Initiative for U.S.-China Dialogue on Global Issues. “Will the Coronavirus End Globalization as We Know It? The Pandemic Is Exposing Market Vulnerabilities No One Knew Existed.” Initiative for U.S.-China Dialogue on Global Issues, uschinadialogue.georgetown.edu/publications/will-the-coronavirus-end-globalization-as-we-know-it-the-pandemic-is-exposing-market-vulnerabilities-no-one-knew-existed.
(7)Jones, Lora, and Daniele Palumbo & David Brown. “Coronavirus: A Visual Guide to the Economic Impact.” BBC News, BBC, 30 June 2020, http://www.bbc.co.uk/news/business-51706225?intlink_from_url=&.(8)Katie Clift Marketing Communications Lead, et al. “COVID-19: How Companies Are Responding.” World Economic Forum,