Indian companies operating in China are facing harsh challenges amid the ongoing coronavirus (covid-19) outbreak, which has shaved revenues, added to unplanned costs and put pressure on retaining employees scared of the epidemic.
For the 130-odd Indian firms in China, the biggest challenge will be “retaining and recruiting talent as most people will now prefer to work near their home and avoid travel to far distances,” a survey by Confederation of Indian Industry (CII), an Indian industry body, said.
Until Monday midnight, as many as 2,666 had died and more than 77,780 were infected with covid-19 in China.
“Since movement of people and goods will be controlled for a considerable period, both lead-time of delivery and cost are likely to increase,” the survey said in context of several cities that are under a lockdown with tens of millions of quarantined citizens.
Indian IT companies operating in China have been badly hit, the survey said without naming the companies.
“The extended Lunar New Year holidays in China have adversely impacted the revenue and growth of Indian IT companies operating out of China. IT companies are heavily dependent on manpower and are not able to operate due to restrictions on movement of people,” it said.
“Consequently, they are not able to complete/deliver the existing projects in time and are also declining new projects. The global customers for Indian IT companies in China have started looking for other service providers in alternate locations such as Malaysia, Vietnam,” it added.
Titled “Novel Coronavirus in China: An Impact Analysis”, the survey was compiled on February 16.
Over 70% of these firms are located in cities like Shanghai and Beijing and in provinces of Guangdong, Jiangsu and Shandong with their business partners located countrywide.
Most of these companies operate in sectors like industrial manufacturing, manufacturing services, IT & BPO, logistics, chemicals, airlines and tourism.
The survey added that extended holidays have reduced productivity, which has a direct impact on revenues and growth. Businesses have been closed since January 24 this year.
“Overall, companies foresee a dip in revenue by 15-20% in the first and second quarter. It is expected that businesses will get normalised only by the third quarter.
Despite nil operations, companies, especially manufacturing firms, are having to incur fixed costs like wages and salary, office rent, statutory overheads and interest. Loss of revenue over February and March is expected to result in cash crunch as fixed costs need to be borne without any sales or only part sales,” the CII report said.
“Indian companies which source products from China or export from India may face the risk of not being able to comply with their obligations. Most well-drafted contracts have a force majeure clause that will determine what happens in such circumstances,” according to the CII.
Broadly, the report said China’s GDP is expected to “…decelerate by 1-1.25 percentage point over 2020 due to halting of economic activities in key production centres.”
The lockdowns will have a knock-on impact on global economic growth as China accounts for 19.71% of global GDP at purchasing power parity. It is estimated that global GDP will suffer an impact of -0.5%, the CII said.