By Tensing Rodrigues
This is the story of a small firm in Bangalore manufacturing bio-medical devices and a lesson that the COVID crisis has for all of us particularly the young entrepreneurs and business leaders: seek independence.
This firm was into development and manufacturing of innovative bio-medical devices. Two of their devices though developed for routine intensive care situations became the highly sought after commodity as the demand for ventilators suddenly surged with the onset of COVID-19.
The enquiries were pouring in beyond expectations. It was not a very fast moving item in the normal times so both the inventories of the ready product and units under manufacture were relatively low. The firm went into full gear in spite of the lockdown with special permissions. In fact the government itself was looking for large numbers. But there was a hitch as most of the components came from a US supplier who sourced them from China. China was in shutdown, US was in shutdown and logistics companies could neither pick nor deliver on account of restrictions.
By itself this does not have much to teach in a situation as existed then, it was natural. But it showed how dependent India was on China. More than that it showed the stupidity of that dependence; because a good proportion of these components were not sophisticated at all they could very well be manufactured in India. But the only reason why everyone, from smallest manufacturers to the biggest, sourced them from China is because they were dirt cheap. Even after a high rejection rate, due to poor quality, still it is cheaper to source them from China.
This is a matter for serious introspection. The decision to buy from China may definitely be a wise decision in normal time. But black swans may appear from time to time probably at a higher frequency than we have experienced up to now. So do we need to allocate a higher weight to them than their current probability calls for?
In other words, does that justify manufacturing within the country at higher costs? It is a tradeoff between lower profits and higher risks. It needs to be seen in the context of China’s hawkish designs. As the world gets further away from the dream of a global village, that tradeoff attains a greater importance. It may appear regressive but when globalization itself becomes perverse, there can be no option but to arrest it.
In the same context, let me share another of my gut feeling with the young entrepreneurs and business leaders. In the midst of the crisis I have observed a lot of businesses mushrooming with focus on COVID-19 related demand, from face masks, gloves and sanitizers to PPEs, powered air-purifying respirators and ventilators. Existing producers have ramped up their production, others have added these to their range of products and new firms have come up with innovative products. But I am not very positive about building business plans around this momentary surge in demand. It is necessary to ask ourselves the question: is this demand sustainable?
Because we need to keep in mind one important factor; as soon as the crisis surfaced, the government reacted by trying to create the necessary infrastructure to fight the disease. A lot of budget provision was made for purchase of necessary equipment. This was to a large extent a knee jerk reaction. But it was soon realized that the task is not as simple as it should have been.
First and foremost, our administrative machinery down the line cannot adjust so easily to rise to the occasion; a lot of resources allocated began to be misused. Secondly the existing infrastructure cannot be easily upgraded. There were both technical and human bottlenecks. For instance very few hospitals had piped oxygen supply and suction network, there was an acute shortage of competent para-medics and technicians to operate the new equipment, not many doctors down the line were experienced in a critical procedure like intubation. A surprising discovery was that some existing equipment was seldom used and therefore not in optimal working condition. As a consequence probably, the money flowing into purchase of the COVID-19 related products is slowly drying out.
You may say, yes, the surge in demand will level out, but definitely there will be the base demand required by the disease. Particularly given the fact that this virus is not expected to completely disappear. But we are looking at a base demand under our current perceptions of the disease. One fact that has become clear is that treatment of patients in intensive care conditions is far less than we had expected. A lot of care is happening under normal hospital conditions. Once we get used to Covid-19, hospitalization itself may become less. So also the use of peripherals like masks, sanitizers, etc. In such a scenario will our investment decisions retain their viability?
*The author is an investment consultant. Readers can send their comments and queries to [email protected]