Since the start of the coronavirus outbreak, companies in Asia have been dealing with supply chain disruptions and have implemented large-scale work-from-home policies to keep the business going. What can companies in other parts of the world learn from their experience?
Guru Balasubramaniam, ACMA, CGMA, acting managing director of Rentokil Initial Hong Kong, and Arthur Yu, FCMA, CGMA, China CFO of Jaguar Land Rover, share what their teams have been doing to stabilise the business.
What you’ll learn from this episode:
- What Rentokil Initial Hong Kong did in the initial stage of the outbreak.
- The importance of clear communication to prevent misinformation.
- What finance teams should focus on.
- What Jaguar Land Rover China did to control costs and manage cash flow.
- How employees are cared for is a sign of company culture.
Play the episode below or read the edited transcript:
For more news and reporting on the coronavirus and how management accountants can handle challenges related to the outbreak, visit FM’s coronavirus resources page.
To comment on this podcast or to suggest an idea for another podcast, contact Alexis See Tho, an FM magazine associate editor, at Alexis.SeeTho@aicpa-cima.com.
Alexis See Tho: Companies across the world have urgent decisions to make - how can their business keep going, can employees work from home for weeks or months, and how will all these affect the bottom line? And the best business decisions are not always clear.
I'm Alexis See Tho, an associate editor at FM magazine. And in this episode, we find out if there's a lesson we can learn from companies in Asia that have been dealing with coronavirus disruptions for the past two months.
I spoke to Guru Balasubramaniam, ACMA, CGMA, who works for a UK company in Hong Kong. He's the acting managing director of Rentokil Initial's office there, a pest control and hygiene services company.
I asked him, how was it like when the virus started spreading in Hong Kong?
Guru Balasubramaniam: Generally, at the start of the outbreak, there was a general sense of panic, caused by the fear of the unknown, a shortage of masks, and also widespread misinformation at that time. And you can see a similar pattern of that happening in other countries where the virus is now emerging for the first time as well.
Even though the panic now has been very subdued there’s still a very heightened level of concern relating to safety against the COVID-19 outbreak. Supermarkets are now fully equipped with masks and toiletries as well. So the masks are back in circulation luckily and the public seems to be well informed on how to protect themselves against the virus.
I think a lot of it comes from the experience the community has with the 2003 SARS outbreak as well.
See Tho: On the business front, the first thing they did was to make sure that employees are safe.
Balasubramaniam: When we first encountered this issue emerging, for us, our initial principle is protecting people. And it’s crucial that we continue to deliver the services to our customers while at the same time ensuring the safety of our staff and our customers as well.
So we did everything that we needed to do, from business contingency planning to make sure we have the backup work locations for the staff, and making sure that they’re fully equipped with safety and protective gear while they’re doing the services. Temperatures were being checked immediately to make sure they’re all covered. Symptoms were being checked as well to see if there were any flags coming up. So far it’s been done very well. Staff are very cooperative and teams are working very well together during this time.
The crucial and the main thing we need to do in this period is to make sure everybody is well informed. Misinformation or the lack of information is usually one of the causes of panic.
So as an organisation, we know where our key members are in the organisation. So getting in touch with everybody and communicating it in the right way, and that everybody understands what the directions are from the business and to protect themselves, and that they can feel that the company is doing everything we can to safeguard their safety in this sense. That was really a key to our success in this period.
We’ve been in Hong Kong for over 50 years. So for us it’s also key that we stand together with our customers to protect them and enhance their environment and bring them through this period.
See Tho: Guru, who is also the head of finance for Hong Kong, Macau, South Korea, and Vietnam, said the finance function needs to think about ways to help suppliers so that they can continue supplying to your business.
Balasubramaniam: When you think of this kind of situation, you just need to make sure that the business contingency has been planned accordingly so that you have a wide range of suppliers that you can reach out to make sure that the supply continues to come in, you check in on their lead time, make sure you have a good set of secondary suppliers for your other equipment, fleet and stationary equipment. You make a good differentiation.
At the same time you have to make sure that you work as a business partner to the supplier, so providing them with all the means necessary so that they can continue to provide you with the necessary raw materials.
See Tho: Looking at the finance teams' role during this time, Guru said the focus needs to be on the supply chain and working capital.
Balasubramaniam: We have different suppliers all over the world and using our sourcing from our global partners, we are able to have an alternative supply chain during this period, which is I think also the strength of having us as finance professionals in this time, is to focus on the supply chain in this period, making sure it goes down from the top to bottom and that the suppliers are being supported well enough. Think of working capital for example. Those would be the key areas for finance professionals to focus on at this crucial time.
Our suppliers, I would say, roughly 50% is back on track. I mean, they’re already working. Their initial focus will just be on supplying China, and like you said, the vast number of casualties are in China. The priority will be for them in that country, and that’s totally understandable.
See Tho: Employees have also been working from home for a few weeks. It's a new experience, he said, but it's been largely positive. Employees with children are happy with the arrangement because Hong Kong's kindergartens and schools are still closed.
Balasubramaniam: It’s been quite interesting. Immediately when this came out we set in motion our plans about working from home so if you identify your workplace, you know which functions are quite capable of working from home, and our infrastructure, the hardware, software, the network itself have been maintained. So it’s an option for them. They have been working from home, rotating around, and it’s been very good to see how teams are working together during this period. We have collaborative relationships at the moment. I just heard one of our colleagues talking to another colleague. They normally sit next to each other, he said, “Hey, haven’t seen you in a long time. I missed you out there.”
It sort of brings out the relationships in the office as well. So that’s really nice to see. And that’s something we need in this time, to get the motivation up, get the morale back up again, and make sure we’ll get there together.
At the same time, they feel happy that the company values the situation and gives them the opportunity to work from home. It works both ways. We still are mindful that a lot of schools are still closed, and a lot of our employees with children, they need to have another way of making sure things work. I think is an ideal work balance for them as well.
See Tho: With employees working from home, cybercrime has also become a concern, whether it's because workers are working from a coffee shop, connected to public Wi-Fi, or employees are accessing data off company servers onto potentially vulnerable devices. Guru said companies need to be vigilant against computer viruses.
Balasubramaniam: We continue to make sure they’re aware. And this is not something we did just this year. Over the last year we really intensified our threat against computer viruses in this case — making sure our staff are aware of what they click on, what emails they receive, and how to ensure safety when they’re socially active.
We continue to do that with them. We do see spammers are also being created. They’re using this virus to tap into more threats. So we keep informing our staff to be vigilant, being aware, and just double-check things before you click on them. That’s important and needs to be addressed.
See Tho: I also spoke to Arthur Yu, FCMA, CGMA, the China CFO of British car maker Jaguar Land Rover, about a month ago and wrote a story on what his finance team was doing. The situation is in China was much more dire, but as of last week, daily new cases have dropped to single digits. Hubei province, where the city of Wuhan is, is home to 60 million people, a population equivalent to the whole of Italy.
They've been on strict lockdown since January up until last week, when the local health commission said industrial production can resume in parts of the province, and travel restrictions will be loosened in a bid to get the economy back on track.
Car makers from South Korea's Hyundai, to Honda, which has two manufacturing facilities in Wuhan itself, have suffered some of the greatest impacts due to the virus spread. They're experiencing what's called a twin shock where both supply and demand have been affected. So with the factory shutdowns they weren't able to get cars made, and they're seeing a plunge in demand because consumers are delaying big ticket purchases. Here's what his finance team did.
Yu: We have to provide a financial impact [analysis] to each of those decisions. So for example, we made a conscious decision to make a payment to all our retailers in advance of [the usual] rebate.
So that’s a decision we made to help our retailer network because otherwise, according to the normal payment schedule, we would not pay them until March. But because they have stopped operating during this period, they will have an issue in their own cash flow.
So as an OEM we are supporting them, giving them more liquidity during this period.
The payment is for the rebate. All the retailers, when they sell our cars, they will get a rebate at the end of each quarter. So we’ve done the population, we know how much it will cost, and we know we can afford to pay out that cash. But what we want to support is, to allow the retailers to operate as normal. To allow them to have sufficient money, that they can keep the business going.
See Tho: They also looked at fixed costs — rent, marketing campaigns, auto shows that they've committed to, what can be done to conserve cash.
Yu: We need to protect our own cash flow. So we’re looking at opportunities by optimising our fixed costs. For example, during this period we have some marketing campaign we used to plan. So we have the Beijing auto show, we have those kind of events. We are considering which events we can stop. So that’s saving our cash outflow.
We are also in discussion with the Changshu government and also Shanghai government to explore how can governments support us. For example, some of the tax payments, social security payments, we’re going to delay them to April or May, which is helping us to protect our own cash flow.
And also, we are asking our landlord to halve the rent during this period in order to support us. So that’s some of the things we’re doing.
See Tho: Continuity in the finance team was also important to keep the business running.
Yu: From a finance perspective, we’re focusing on our own internal financial processes. So if you look — we have critical finance business processes in finance — accounts payable, accounts receivable, payroll, and tax – and [losing] any one of them can create a significant impact on the continuity of the company.
So during this period my team is working together to come up with a plan to allow these to run as normal from a finance process point of view. But a lot of these processes, we’ll have to do it remotely.
So that’s a lot of coordination between finance and other functions as well.
See Tho: Decisions needed to happen — quickly. So I asked him, how did he make decisions when there was still immense uncertainty.
Yu: I think a lot of times it’s not the decision that’s difficult to make. But it’s the priority. So even during this period, what the finance team has been supporting the team, providing the team, is the clarity.
See Tho: The business aside, keeping employees safe was also a major priority for Jaguar Land Rover. The same day Wuhan was placed on lockdown, the company issued a travel ban, and flew employees home. The answer seemed obvious, but I asked him — why?
Yu: If we don’t treat our people well during this period, then people will be disappointed in our company. So, we’ve been looking after our own people. When the news broke out, our global CEO sent an email to my China CEO and myself and a few other China executives which simply said, let’s make sure we look after our people.
So, it’s a business culture and we’re treating people as an asset. During this period, that culture comes out to play an important part.