Saturday, July 4, 2020

THINK STRATEGICALLY: Beyond Coronomics

By on June 1, 2020

The next normal for Puerto Rico Businesses 

The coronavirus pandemic is not only one of the worst health crises of the last 100 years, but it has also forced a complete overhaul of the global economy. We have seen once-mighty corporations fall as the outbreak’s repercussions have impacted them so dramatically, forcing them to file bankruptcy. Among them, the following  well-known corporations such as Avianca, Hertz, JCPenney, Neiman Marcus and Virgin Australia

We can only wonder how many Puerto Rico Businesses will file for bankruptcy. 

For most corporations survival is the only near-term item on their list, while others attempt to see beyond the crisis to determine how to position themselves.

My job is to guide people past the crisis and prepare businesses for the new normal.

As traditional methods, customs, metrics and understanding of typical operational behaviors have been rendered useless. Many leaders are finding the answers using a World War II playbook and how our grandparents dealt with the stark realities of a world war.  

My firm and I have developed a series of actions across five phases. 

  • Boldness
  • Resilience
  • Reinvention
  • Restitution
  • Revolutionize

Each phase will vary in duration depending on the industry, sector, rules and regulations; most entities will find themselves operating on several phases at a time. The key is to go from surviving to thriving. 

Boldness

The key to Boldness is the speed of the actions; it is not enough for companies to recover revenues over time as the pandemic dissipates. As owners rethink their income streams, they must position the business for a long term haul; to get ahead of the competition, one must operate with a start-up’s frame of mind. Start-ups favor action, implementation and testing new ways of doing business. Start-ups favor technology, innovation and agility. In our review, we note that 60% of companies in early May stated that their new remote sales models were providing as much 29% and were more effective by as much as 33% than traditional channels—a unique opportunity to accelerate the digital and technological innovations to enhance the business.  

Resilience

As we review available data, all the numbers lead us to conclude that the shock to our way of life from the economic impact of the lockdown efforts has been the most impactful in 100 years. In Puerto Rico alone, the decline in economic activity in a single quarter has been far more significant than the losses during the Great Depression. As we face these difficulties, resilience is not only needed, it is vital for survival. We are facing liquidity, solvency, loss of sales and changing business models. Most businesses must face this shock with broader resilience plans as the pandemic shock will change long-established industry structures and models. 

Reinvention

If, as a business, you never thought of online sales, curbside pickup, or offering delivery, this is the time to implement it and fast. Much of the progress will come from shifts in operating models, developing a new set of clear goals, focused teams, and rapid decision-making. Over the past three months, we have witnessed a transformation in the ways we interact with family, co-workers, perform our work, seek medical attention, and a plethora of routine daily transactions. These changes have increased the migration to digital technologies at stunning scale and speed, across every sector.

Restitution

Seeking to return to things as they were before may be a lovely thought; however, it is one that may prove to be unobtainable. For that reason, leaders must reassess the entire organization and their business model, and develop plans of action to create a restitution model that becomes effective, scalable, and productive and allows the adoption of new changes. 

Revolutionize

After the pandemic, its lessons will also provide an opportunity to learn from many innovations and experiments that utilize the crisis models that were implemented during the epidemic for the long term. The changes include the move to a remote working model, flexitime, distance learning, decreased brick and mortar sales, and the establishment of social distancing as permanent fixtures of the new economic model. Pandemics usually bring about transformative changes in the lives of many countries and the surviving population. 

As shown above, the five phases as detailed offer leaders a clear path to begin the journey to transport us to our next new normal, which will be radically different than before COVID-19.

Corononomics will result in three repositionings: 

First, some fundamentals will never regain their former status. 

Secondly, some of the current trends will surge because their immediate need has been indisputable during this critical period.

Thirdly, unique ecosystems will be created around these new heightened levels of personal protection and health security. 

The transformation will impact at least three generations and will be irreversible, altering human behavior through their lifetimes. Every transformation brings about brand new economic opportunities.

Week in markets: Reopening Hopefulness Drives Markets 

The U.S. and global stock markets had one of their best months in recent memory; however,  with large point swings, it was also a very volatile month for investors. Investor optimism continued to suppress weakening economic data. Investors are betting that the reopening of the world’s economies, which began last month, will allow for a much faster recovery. 

A consistent slow decline in new infections both in the world and Puerto Rico has allowed the partial lifting of restrictions, but we are by no means out of the woods. In the eurozone, there was the announcement by the European Commission of a 750 billion euro recovery fund. In comparison, it requires all EU members’ approval and includes 500 billion euros in grants to member countries. The announcement drove European equities higher. 

Also, affecting the markets are U.S. & China tensions as Hong Kong is losing all autonomy following a proposed Chinese national security legislation. Additionally, the White House announced it was officially withdrawing all funding to the World Health Organization as it blames it from mishandling the pandemic. All told, the U.S. contributed $900 million in funding. 

On to the markets, the Dow Jones Industrial Average closed the month May 29 at 25,383.11 points, a gain of 1,037.39, or 4.26%, and a year-to-date (YTD) return of minus-11.1%. The S&P 500 closed at 3,044.31 for a gain of 131.88, or 4.53%, and a YTD return of minus-5.8%. The Nasdaq closed at 9,489.57 for an increase of 601.32, or 6.75%, and YTD return of 5.8%. The Birling Puerto Rico Stock Index closed at 1,491.60 for a gain of 38.93, or 2.68%, and YTD return of  minus-26.81%. 

Meanwhile, the U.S. Treasury’s 10-year note closed at 0.65%, a change of 1.56%, and YTD return of minus-1.3%. The U.S. Treasury’s 2-year note closed flat at 0.16%, a change of minus-20%, and a YTD return of minus-1.5%.

Shape of the Recovery

We continue to predict that the economic recovery will look U-shaped as it occurs in phases. The economy returns to normal levels during the rest of 2020 and part of 2021. Our “U” shape recovery prediction is based on the coronavirus not spreading after the lockdown and people continuing to social-distance in addition to obligatory use of masks, face shields, gloves, alcohol and hand sanitizer. Furthermore, the “U” shape recovery predicts that human behavior has changed and will permanently alter how business is conducted and socialization happens.

Final Word: A crisis reveals the leader’s true colors

The world watched in dismay the senseless killing of George Floyd by a police officer for allegedly paying with a fake $20 bill. Many of my fellow Puerto Ricans can easily put themselves in Mr. Floyd’s position and imagine if the same happened to any of us, for inadvertently paying with a counterfeit $20 bill.  

Since 2017, speeches and tweets by President Trump have created a division among whites and most minorities. The president of a nation often sets the tone, and Trump’s has been divisive. It seems hard to believe from a country that elected an African-American as president twice and is still one of the most popular presidents in recent memory.

Some weeks ago, I wrote a critique of Donald Trump’s actions as president, and some members of the Act 20/22 community called my position stupid. Some of them view the world through their Republican or Democratic eyes; that is not the case for most people from Puerto Rico. Puerto Ricans have been U.S. citizens since 1917, a fact most Americans often do not know. 

Our U.S. citizenship is, at best, a second-class citizenship, and we have been overlooked and discriminated against for years. America today is the same nation where if anyone catches you speaking Spanish, you could be harassed. America today is the same nation in which if you wear a T-shirt with the Puerto Rican flag, you may be threatened. America today is the same nation that if you decide to plant a Puerto Rican flag in your home, your neighbors may call the police on you.  

America today is the same nation where two Puerto Ricans open a restaurant in Miami and paint a mural with the Puerto Rican flag, and neighbors sue.  

One of the jobs of the president is to unite the nation, but you have to unite the whole country, not just part of it. Also, you must have compassion. Without compassion—in any crisis—you cannot be a good leader. 

I went to high school and college in Louisiana, and I can tell you without hesitation that going to school in the Deep South in 1981 was quite a cultural shock, the same shock I am feeling by reliving the Civil Rights fights all over again.

Francisco Rodríguez-Castro, president & CEO of Birling Capital, has more than 25 years of experience working with government, and multinational and public companies.

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