Living With Sars

beckhan

Living With Sars—How Business Is Coping With The Virus

From Far Eastern Economic Review
By Ben Dolven/SHANGHAI, David Murphy/BEIJING, Geoffrey A. Fowler/HONG KONG
Issue cover-dated April  17, 2003
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As the death toll and general impact of the Sars virus increase, companies operating in afflicted areas must cope with new dilemmas that won't be going away soon. Hong Kong's economy is hurting, but China's manufacturing backbone keeps churning out the goods.

TALK ABOUT flying into the teeth of the storm. Xavier Naville, chief executive of a food-processing company called Creative Food, will open a new plant next week one-and-a-half hours' drive outside Guangzhou to prepare and package chopped lettuce and other fresh-cut vegetables.

The timing could hardly be worse. Over the past four months, the Guangzhou area has become Ground Zero for the deadly Severe Acute Respiratory Syndrome, or Sars, epidemic that has leapt to four continents and 17 countries. Foreign consulates and companies in Guangzhou and neighbouring Hong Kong have sent thousands of staff and their families home. As the Review went to press, official figures said 103 people had died worldwide and 2,671 had been infected, including at least 43 dead and 1,206 infected in Guangdong province.

Yet economic activity in the afflicted parts of China continues--indeed, the broad base of China's economy is rolling along with few hitches. Naville says that, with the exception of a two-day period after Guangdong admitted for the first time that it had Sars cases, there have been no delays on the new plant, which will open on April 14. While smaller economies such as Hong Kong and Singapore have been hammered, given their high exposure to collapsing retail and tourism sectors, in China, there's little sense that the factors which brought investors to the country--low costs, growing incomes--have been fundamentally altered.

This could change, especially if the epidemic gains ground in the coming weeks and months. There is much unease about the Chinese medical system, and about the government's suppression of information about the outbreak. But for now, managers in China are struggling, not toward the exit door, but to deal with a host of challenges different from any that they have had to face before: How much does Sars force them to alter their business plans? Do they quarantine workers? Do they halt travel to affected areas? Do they demand employees wear masks?

The answers remain as maddeningly elusive as information about the disease itself. So much about Sars remains uncertain--there's still no cure, nor any certainty about how it spreads. "We're already working in an environment that is super-sanitary," Naville says of his company's operations, which normally require staff to wear masks and hygienic clothing, clean the food with chlorinated water, and constantly wash hands as they handle food. "I keep thinking, 'Is there something else I should do?'" (For now, he says, no. Workers received a health check, and remain "not too sensitive" about the disease. Most of his managers expect to clock time in Guangzhou over the next month.)

One thing that appears clear is that companies operating in China will have to live with Sars for some time. "I don't think it's going to go away anytime soon," says Robert Breiman, an infectious diseases expert who last week led a team of specialists from the World Health Organization to Guangdong province to investigate the disease. "eople may have to get used to this being one of the many risks that are out in the world, like TB and flu."

For China, and for the region, the specific impacts are hard to gauge. Certainly, there is great concern about the quality of the country's medical facilities. A survey of expatriates by the Hong Kong-based Political and Economic Risk Consultancy ranked China's health-care system next to last in the region, ahead of only Indonesia. "It is not simply that facilities are bad and the qualifications of many medical practitioners are in doubt, but that the whole system is politicized in ways that can interfere with good health care," the report said.

But despite widespread consternation about the Chinese government's glacial response to the crisis, which many blame for allowing the disease to spread largely unchecked in its initial months, businesses aren't likely to bail out of the country. Even in Guangdong, supply chains haven't been disrupted. Despite the fact that many Asian airlines have cancelled up to a quarter of their passenger flights, cargo volumes handled out of China by Federal Express remain more than 30% above levels of a year ago. "We're not seeing anything that we'd say, 'That's a Sars impact'," says David Cunningham, president of FedEx's Asia-Pacific division.

So assessing an economic impact is "so contingent on whether it's knocked on the head in the next few weeks," says Geoff Barker, an economist with HSBC in Hong Kong. Clearly, hotels and international air carriers have already taken an enormous hit--a huge problem for Hong Kong, but a smaller one for the broad Chinese economy. The Hong Kong Retail Management Association said on April 7 that retailers had seen sales cut in half since the epidemic began. Several trade shows have been postponed, and hotels say occupancy levels are down as low as 12%-20%.

But in China, the macroeconomic hit, while real, isn't yet large. "articularly for a large economy like China's, you may not be able to notice the numbers," says Fred Hu, chief China economist for Goldman Sachs. "The concern I do have," Hu says, "is about the long-term impact on China, the whole perception of transparency, government policy."

A sense of resigned calm seems to permeate large Chinese cities, in contrast with the gloom that grips places like Hong Kong and Singapore--even though their governments have better health-care systems and have been much more proactive in dealing with the crisis. One Southeast Asian businessman in China says his son telephoned him last week, advising him to remain in Shanghai (confirmed cases: one) rather than travel to Singapore (confirmed cases: 113) because he felt Shanghai was safer. One reason for the relative calm in the mainland: a state-controlled media that repeatedly has told the public that the epidemic is "under control" even when it wasn't. It also hasn't reported information about Sars that might alarm the public, such as details of how contagious it can be.

In Guangzhou, even most drug company representatives are heading to hospitals for their sales calls. Philip Xiao, chief executive of ProFex, a Shanghai-based drug distributorship, says there was a brief period around the Lunar New Year holiday, when Guangdong first reported it had 305 cases, when salespeople shied away from hospital visits. But, he says, they're going back: "Our people are," he says. "It looks like they are going to make their sales targets."

This isn't to say that China's attractiveness as an investment destination won't be compromised by the outbreak and the government's slowness in responding. Many people who work for companies operating in China are loath to speak out too publicly, but the criticism of one executive in Southeast Asia is not atypical: "articularly, some of the actions by the local authorities have cost China some reputation in the rest of Asia. China seeks to be a leading country in the region and this is not the kind of behaviour you expect of a country that is a leading country."

For now, many overseas executives are taking their cues from the WHO, whose advice against unnecessary travel to Hong Kong and Guangdong is being reviewed daily, but looks likely to stand for a while longer. Dick Thompson, the organization's Geneva-based spokesman for communicable diseases, says that in order to lift the advisory, the WHO would need to be satisfied that the disease was no longer being exported, that proper infection-control practices were in place, and that all new cases that appear can be traced to an identifiable Sars source. In the interim, luminaries such as Motorola Chief Executive Chris Galvin, Boeing CEO Phil Condit and Singapore Prime Minister Goh Chok Tong cancelled their plans for trips to China.

Meanwhile, many multinational companies are activating contingency plans, or following guidelines being distributed by embassies and consulates in China. Take Motorola, one of the largest foreign investors in China. Following recommendations by the U.S. State Department, the company has restricted travel to affected areas, requiring the approval of senior management for any such trips. It's also allowing nonessential workers and families to leave high-risk areas like Guangdong and Hong Kong. "There is no 'evacuation,' but voluntary home leaves are being approved," says Mary Lamb, director of the company's corporate communications.

FedEx, meanwhile, has issued masks and gloves to employees who deal directly with customers--they're required gear in Hong Kong and southern China, and optional in Singapore and the rest of the Chinese mainland. And when electronics giant Philips Group discovered that a Hong Kong employee in the group's semiconductor operations was diagnosed with Sars, it spent two days scrubbing its Shanghai office, where the employee had visited. The company is spending particular efforts on extra sanitation, checking its air-conditioning systems, and issuing health advisories "following the advice of the WHO," says Jesslyn Koh, a spokeswoman in Singapore for Philips Asia-Pacific.

Companies have sent staff home across the region. In Hong Kong, telecoms company PCCW sent 51 employees home because a worker tested Sars-positive. Motorola, meanwhile, sent 305 of its employees in Singapore home after it found one of its night-shift workers had contracted Sars, probably from a family member. And Credit Suisse Private Banking split its 130 Hong Kong staff into two teams who work in the office or at home on alternate days, activated an emergency site in the industrial area of Kwai Chung to be used if its office is contaminated, and will quarantine for 10 days all workers who travel overseas. "In case we come upon an emergency, only 50% of our staff would be affected," says Tom Meier, the company's Hong Kong-based CEO for North Asia.

If travel bans continue, more fundamental business disruptions could happen soon. Texas Instruments, for instance, isn't allowing its information-technology service staff from other parts of China to visit Guangdong. So far, no strong requests have come from customers there, says Arhun Erkan, who manages TI's Shanghai mobile-phone group. "I wouldn't say it's a huge impact now," he warns. "But if it goes on for another 2-3 weeks the impact will be greater."

Telecommuting has provided companies with a way to keep operating and stay safer than clustering everyone in offices. PCCW reports that last week, Internet usage of its Netvigator broadband service was up 20% in Hong Kong, and many companies had requested urgent Internet services for key staff in case they had to work at home.

An expatriate mother with two daughters in Zhuhai, the city just across the border from Macau, captures some of the mood: "I just don't know what to do," she says. "Really I'm lost. I don't want to be in a state of panic, to overreact. But you don't want to put your kids in danger."

With so much unknown about the disease and a cure apparently still some way off, there may be little choice but for people to take some basic precautions and get on with normal life. The incidence of disease is still quite low in Guangzhou, and mortality rates for infected people are around 3%-4%. "Although it is a very important public-health problem I don't think it requires people to wear masks, except possibly where you are on a plane or obviously in a hospital environment," says Breiman, the doctor on the WHO's Guangdong team. Such advice isn't heeded however in Hong Kong or Singapore, where many anxious residents travel and work wearing masks.

Meanwhile, the WHO team says that it has achieved a great deal on its visit to China. Most importantly, its presence has pressured the Chinese government to cooperate with the international medical community in dealing with Sars. WHO investigators have had access to a large amount of medical records in Guangdong and have offered to help Chinese doctors with the translating and distribution of this to doctors around the world to help them better understand the disease. They have also asked Chinese doctors to send disease samples to foreign medical laboratories that in exchange can supply Chinese specialists with reagents to test for the presence of the coronavirus in suspected cases.

It is still possible that the disease could be eradicated by isolating people who have Sars, but that becomes more difficult as the geographic area covered by the disease increases. Failure to wipe out the disease could force doctors to alter the way they react to some patients with common ailments. "If we can't eradicate this it will change the way we approach patients with fever and cough, the way HIV changed the way we approach blood," says Wolfgang Presier, a virologist on the WHO's Guangdong team.

But across much of mainland China, little concern among ordinary workers is in evidence for now. In Beijing and Shanghai, few people are wearing the masks that are so commonplace on the streets of Hong Kong. "eople are not calling me to say 'I'm scared, I'm scared,'" says Naville, who was in Guangzhou in late March to prepare for his plant opening. "If I walk through the airport wearing a mask, everybody looks at me with a funny air because they think I'm stupid."