IF AT THE start of 2020 you asked chief executives what kept them up at night, they would trot out the usual list: how to adapt their business models to a changing world, reconfigure supply chains amid geopolitical squabbles, not fall behind technologically, attract the brightest employees and not alienate consumers and investors increasingly concerned about things like social justice or climate change. How, in other words, to ensure their company joins—or remains among—the ranks of superstar firms that increasingly dominate the corporate landscape, rather than the long tail of also-rans.
Pose the same question now, as the most turbulent year in living memory draws to a close, and bosses’ answers will be pretty much the same—only more so. The pandemic did change some things. Companies embarked on a giant experiment in whether they could switch to mass remote working (they can, more or less) and whether global supply chains could withstand widespread disruption (ditto). Bosses had to learn to run their businesses from their studies and their crisis-management skills were tested. Human-resources chiefs rose in stature.
But the coronavirus mostly simply sped up changes to the business world that were already taking place (as it has done in most dimensions of everyday life). By doing so it has widened three rifts in the world’s corporate landscape.
The first is to make big, powerful firms mightier—often because those firms provide products and services on which the self-isolation experiment relied. What used to be a convenience—Amazon’s home delivery, Microsoft’s cloud-based office software, Zoom’s video calls, an evening with Netflix—became a necessity, for remote work during the day and a tolerable life afterwards. Weak companies—or ones that looked strong only thanks to book-cooking—were exposed for what there were, and fell by the wayside.
Investors, flush with cash and starved for returns in a world of near-zero interest rates, ploughed a record $3.6trn of new capital into non-financial firms with a chance of outliving the pandemic. Money flowed to companies even in industries which covid-19 threatened to sink, such as cruise ships and air travel—so long as those companies had a shot at entrenching their pre-pandemic dominance. In April Carnival Cruise Lines raised $6.25bn in debt and equity, despite being a covid petri dish of a business, and Boeing sold bonds worth $25bn in May, never mind that its bestselling 737 MAX jetliner was still grounded after two tragic crashes in 2018 and 2019. Dollars flooded into a frenzy of initial public offerings reminiscent of 1999, rekindling memories of the dotcom bust that followed.
This helped exacerbate another divergence: between exuberant Wall Street, where stock indices rebounded from a crash in March to an all-time high, and Main Street, filled with rows of boarded-up businesses. The tech-fuelled stockmarket rally pushed Apple’s market capitalisation above $2trn and allowed Tesla’s market value to overtake one giant carmaking rival after another, ultimately leaving all of them in the dust.
The third rift—between Western and Chinese technospheres—would have grown wider even in the absence of covid-19. America’s outgoing president, Donald Trump, has been trying to hobble Chinese tech titans almost since taking office in 2016—successfully in the case of Huawei (which makes 5G telecoms gear and is perceived by American spies as a threat to national security), less so when it came to TikTok (which makes teenagers giggle by serving up silly videos). His successor, Joe Biden, may tone down Mr Trump’s anti-China bile, but not suspicion of the Communist regime. As geopolitics continues to rend technology supply chains asunder in 2021, companies that have served both Western and Chinese markets will increasingly be forced to pick sides. They include Taiwan’s semiconductor firms, energy supermajors or ASML, a Dutch firm with a monopoly in abstruse chipmaking equipment which this year overtook Siemens to become Europe’s biggest industrial concern. CEOs should not count on restful slumber.
Source: Business - economist.com
