Beyond COVID-19 Reflections on the long-term impact of a new type of crisis - April 2020
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Beyond COVID-19 Reflections on the long-term impact of a new type of crisis April 2020
“ At EY-Parthenon, we are also guided by the adage: We tend to overestimate changes possible in the short term and underestimate the scale of the change in the longer term.
The global effects
of COVID-19
COVID-19 has become a unique event in modern history
with as yet unknown ramifications. For the first time, we are
trying to constrain a pandemic through the broad restriction
of economic and social activities around the world. This is
done to prevent unnecessary loss of lives and to protect our
most vulnerable fellow human beings.
All of us and our businesses are currently Accordingly, we have tried to set out some
struggling to keep things moving while key questions and impacts we anticipate
protecting our past achievements. Next over the longer term, recognizing that
steps are crucial, but not necessarily this is not just an economic but a social
evident. Luckily, there are a huge number and political crisis as well.
of “hot takes” on this crisis, with mostly
We plan to use this in conversation with
helpful advice and, more importantly, a
our clients, advisors and colleagues to
lot of creativity and solidarity on how to
refine our understanding as we go. We
help in dire times.
would be delighted if you joined us in
this conversation.
Beyond COVID-19 Reflections on the long-term impact of a new type of crisis | 1
A new type of crisis …
COVID-19 is simultaneously a demand
and supply-side crisis that affects industry
ecosystems and consumer behaviors at
many different levels. Markets such as
the EU and the US that companies could
previously treat as “single markets” have
in many respects become patchworks
with local restrictions and regulations.
The size of rescue and stimulus packages,
equivalent to around 10% of worldwide
GDP already, as well as the immediate
… but not the last future catastrophic events, which will
increase society’s resilience at the cost
damage to the labor market indicate its of its kind of underlying economic efficiency, and
enormous economic impact. therefore of reduced growth rates.
For all its uniqueness, this crisis is
In addition, this crisis not only affects Given the above, chaos is a ladder.
unfortunately not likely to remain a
people’s financial and job security like Markets are disrupted in the short
one-off. Health crises have become more
“normal” economic crises, but also their term. Here are a few hypotheses and
frequent, and the trend is continuing.
ability to interact with their nearest and key questions we need to answer to
COVID-19 is the seventh international
dearest, affecting everyone at a deeper prepare in the longer term for the world
health crisis in only 20 years. Any new
sociological and psychological level. beyond COVID-19:
health crises may similarly affect the
Exacerbating the magnitude of these global community. And climate change
How will consumers evolve?
challenges is the uncertainty of how long will certainly be sending us a whole raft of
these restrictions should last. Responses new environmental crises. Some old habits die easily
and reactions of governments, companies
Achieving suitable mitigation will become The months of isolation plus the loss
and consumers are likely to haunt us for
a key societal demand. The COVID of wealth may lead consumers to think
many years. Resulting debt levels from
reactions may serve as a blueprint for through their priorities: the “known
fiscal stimulus packages as well as the
how to tackle other global crises — or for unknown” is to what degree this will
loss of resources will clearly be felt for a
how to fail to solve global challenges. lead to consumers fundamentally
long time. We will tackle new challenges
re‑evaluating priorities and trade-offs,
after the crisis, albeit handicapped and One way or another, governments
e.g., in travel behavior, in a way not seen
significantly poorer than when we started and companies will define measures
in previous crises.
the new decade just a few months ago. and establish buffers to deal with
2 | Beyond COVID-19 Reflections on the long-term impact of a new type of crisisConsumer habits may well see a lasting What will “new work” While the way this will play out is still
change where a quality “in-home” undetermined, we will see another step
alternative is available, permanently
look like? change in the way businesses leverage
boosting the share of in-home spend. The next Digital Wave technology going forward.
How many categories will follow
online video and music? And what
The “lockdown” has thrust a new Will transformation needs
generation of interactivity tools into
will happen to the “high street”: does
the spotlight. Email traffic has been
be different?
it become “shopping as theater” or
simply a destination full of cafes and
superseded by new collaboration tools; A catalyst for change
video calling has become normal. Within
entertainment? What happens to the COVID-19 will almost certainly accelerate
days, the digitalization of services from
value of commercial real estate? adoption of some previously existing
entertainment to shopping to accounting
For strongly suppressed categories cost measures (e.g., automatization and
to conferences to trade fairs to higher
without comparable alternatives, modularization) and transformations
education has significantly increased.
consumer habits may mostly bounce (e.g., D2C sales and diversification).
After two weeks in “lockdown,” roughly
back. Especially in leisure, consumer a quarter of the German workforce was However, some other traditional measures
memory has traditionally been short: already working from home. may very much go out of fashion as
restaurant visits, box-office figures e.g., ecosystems and supply chains
What will be the permanent impact on
and ticket sales can be expected to become more risk aware. Low-cost
other sectors from medicine to commercial
largely shift back once health risks country sourcing and stringent inventory
delivery to retail to office buildings to B2B
are addressed. reduction may have seen their heydays.
sales? Where will personal interaction be
Customers and OEMs will demand
even more high-tech, and where will we
redundancy and will avoid putting all
roll back to our good old “human touch?”
their eggs in one basket.
Beyond COVID-19 Reflections on the long-term impact of a new type of crisis | 3While the intentional redundancy Global supply chain What is the road
partially reduces efficiency, it must
increase resilience and agility. New
or islandization? to “better”?
industry 4.0 technologies such as 3D A new world connectivity Efficiency will take a backseat
printing and other novel manufacturing
In the current crisis, global supply chains to long-term value
technologies will certainly become more
are primarily being discussed from a risk It is clear that no simple set of
important to enable such changes.
standpoint. However, global supply chains prescriptions will suffice to address
The importance of embracing the
are also a driver of social progress and the post-COVID-19 world. But we have
opportunities provided by collaborative
the buildup of wealth both in developing a reasonable degree of confidence
ecosystems will grow in parallel.
and developed countries. that — beyond the immediate fight for
Will trust in governments To what extent will global supply chains liquidity — through the crisis, long-term
go up or down? survive the crisis, and what are the value is going to become a much brighter
implications if they don’t? “North Star” by which to navigate.
The social contract rewritten
While the 20s and 30s of the last Numerous companies have learned that
So far, strong government interventions the combination of minimal inventory
century have taught us that not even the
in citizens’ private lives on behalf of buffers and distant suppliers can lead
strongest country can flourish on its own,
the greater good have been received to major shocks during a disruptive
it remains unclear whether we need to
surprisingly well. Longer term, this could crisis. Ecosystems, supply chains (!) and
relearn this lesson in the 21st century.
partially rewrite the social contract business systems will be fundamentally
At the same time, we must hope we have
between citizens and governments. rethought, rebalancing efficiency and
learned our lessons from past instances
Looking at businesses, government when a strong expansion of liquidity met resilience in the light of new government
intervention will likely take two forms: supply chain disruption. regulations, sustainability goals and
regulation (e.g., protecting critical shifting cooperation among nations.
infrastructure and setting standards for How do we manage This will likely lead to mid-to longer-term
flattening of economic growth vs. pre-
sustainability and employee protection) international crises
and active participation in the private crisis levels in traditional business fields.
in the future?
sector through financing/ownership Business plans and investment horizons
of firms or creating demand through Rules and power may have to lengthen, with potential
targeted government spending. implications for public and private
It is not only within individual countries
Telecommunications providers, for and industries that COVID-19 is shaking capital, and scenario planning becoming
example, now expect governments up the current order — things may significantly more complex.
to realize the system-criticality also change between countries. Will Therefore, companies will likely need
of broadband networks. This can superpowers be able to provide more to reorient toward creating long-term
lead to stronger subsidies or public leadership to the world? Or will we find value for customers, their people and
investments into fiber expansions, but it more effective to look at some smaller their investors, while more explicitly
also to stronger interference, e.g., countries that emerge as role models in demonstrating they are meeting
concerning net neutrality. dealing with the crisis, such as Singapore societal needs. The economy, pensions
or South Korea? Post-COVID-19, they and future generations need risk-
If things go well, the current experience
may gain further international weight due taking entrepreneurs and investors
may lead to society continuing to
to their wisdom, and despite their size. as much as they ever have. But they
allow governments to intervene more
“forcefully” to safeguard the greater also need assurance that these risks
good in areas with a broadly accepted are better managed than before, and
need for action. However, if governments not externalized for governments and
fail to meet expectations and interfere taxpayers to pick up the tab.
with individual freedom in an unbalanced
manner, trust will erode.
4 | Beyond COVID-19 Reflections on the long-term impact of a new type of crisisAuthors EY | Assurance | Tax | Strategy and Transactions | Consulting
Andreas von Buchwaldt About EY
EMEIA Leader EY is a global leader in assurance, tax, strategy, transaction and consulting
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