The world’s timeline can now be divided into two parts – pre-Corona and post-Corona. So impactful was the outbreak of the pandemic that it pushed the global economy and humanity into a crisis. As part of pandemic control measures, the governments world over imposed total lockdowns. The lockdowns may have helped in limiting the spread of the disease; yet it brutally affected the global economy, unsettling whole value‐chains of most vital industries. The OEMs are no exception to this trend of being crippled by the aftermath of the pandemic.
Impact of COVID19 on OEM’s
The outbreak classified as a Black Swan event by WHO has compelled the OEM sector to operate in an environment teeming with apprehensions and uncertainty. The global financial markets linked to the broader OEM spectrum are under severe stress. People’s shift to limited or shared mobility, truncated consumer demand and liquidity crunch are some of the factors challenging the functionality of the OEM sector thanks to the pandemic. Many OEM firms are severely limiting their R&D spends to divert the same to support operational overheads. Non availability of transport vehicles during the lockdown and inflated transport costs post pandemic hit the OEM sector hard as it restricted goods movement. In many cases, finished goods were lying around in the plant due to mobility issues. Disrupted supply chains and marketing plans combined to deliver a knockout blow.
Inadequate availability of labor is also a factor that’s impacting OEMs. Most firms operate in a labor-intensive environment with heavy dependence on immigrant labor. There was a mass exodus of immigrant labor during the lockdown and most of them are yet to return in the new normal. This is proving to be a major pain point for OEM firms. Availability of loans and financial assistance from banks and financial institution is yet another roadblock. Thanks to the pandemic loan repayment evasions have spiralled thereby impacting the sanction of new loans. Most OEMs are dependent on banks and institutions to meet their functional needs. Lack of any risk mitigation mechanism in place is also an adverse factor challenging the functionality of OEMs. Overall lack of empathy from the government and absence of any bailout packages or financial assistance is also killing the OEM sector. There has been a sudden and solid decline of demand in the B2C space which in turn had a radiating effect on the B2B sector.
How the Russia Ukraine war is hurting the OEM sector
Manufacturing activity the world over has slowed down drastically since Russia’s invasion of Ukraine. The war has tightened supply chain bottlenecks, truncated demand and hurt market sentiments. And spiralling energy costs triggered a surge in prices, across domains and products. The war has unleashed a broader sense of uncertainty and insecurity; add to this, inflated living costs and what we have is a not so rosy picture. This could lead to a global economic crisis starting with Europe which is a huge export market for most Asian nations including India.
The supply chain functionality is worsening by the day making raw material and operational overheads dearer. This in turn leads to inflated selling costs passed on to the end consumer. Mounting power costs, increased freight delays and diversions are causing raw material shortages and inflated costs. The impact of the war is now showing in the Asian markets too including India. Sudden drop in demand and clogging of vital trade routes has already started impacting the regional OEM sector especially firms which are export oriented.
The Asian perspective
Asia is the world’s largest manufacturing hub contributing about 41% of the global exports. The ongoing war is already proving disastrous to China, the region’s largest manufacturer followed by India. Prices of raw materials like copper, nickel, aluminium and palladium have started skyrocketing upsetting the functional dynamics of manufacturers. And of course, crude oil prices are soaring at an all-time high impacting nations which are dependent on imported oil for fuel needs. Supply chains especially in India are yet to recover from the pandemic after-effects; the war is proving to be the proverbial last straw on the camel’s back. The war is also damaging currency markets worldwide pushing the manufacturing sector on to the brink.
The bottom line
Just when the world heaved a sigh of relief believing that it has seen the end of the pandemic, the Russia Ukraine war came as a rude shock. And as the war rages on, there’s news of a fresh outbreak of Corona in China and few other places. These developments are suffocating the whole business spectrum including the OEM sector. Enterprises would do well to adopt a proactive stance and workout risk mitigation plans to be deployed at the earliest. Be it the war or the pandemic, there seems to be no immediate end. Hence, it’s imperative for companies to think out of the box and come up with solutions that would enable them to stay afloat through the twin crises. Yes, it’s time to pause and introspect.
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