Wednesday, March 15, 2006

Globalization and the "Weakest Link"

Can public health epidemics such as SARS stop commerce in a major city? This article in the Times argues that globalized companies face the risk of losing access to their workforce in other countries if a disease spreads but that these companies have not planned for this contingency.

A free market view of public health investments by nation would argue that if globalized firms can credibly threaten to invest less FDI in nations where public health outbreaks are likely then this provides incentives for the government of these nations to invest more in public health to reduce the probability of disease outbreaks.

My point is similar to the public finance literature on when local governments are disciplined to not raise taxes or provide low quality public services. If firms can "vote with their feet" and locate elsewhere then capitalist mobility can be a driver of improved governance in LDC nations.



March 16, 2006
Is Business Ready for a Flu Pandemic?
By ELISABETH ROSENTHAL and
KEITH BRADSHER

Governments worldwide have spent billions planning for a potential influenza pandemic: buying medicines, running disaster drills, developing strategies for tighter border controls. But one piece of the plan may be missing: the ability of big corporations to continue to provide vital services.

Airlines, for instance, would have to fly health experts around the world and overnight couriers would have to rush medical supplies to the front lines. Banks would need to ensure that computer systems continued to move money internationally and that local customers could get cash. News outlets would have to keep broadcasting so people could get information that might mean the difference between life and death.

"I tell companies to use their imagination to think of all the unintended consequences," said Mark Layton, global leader for enterprise risk services at Deloitte & Touche in New York. "Will suppliers be able to deliver goods? How about services they've outsourced — are they still reliable?"

Experts say that many essential functions would have to continue despite the likelihood of a depleted work force and more limited transportation. Up to 40 percent of employees could be sick at one time.

Indeed, the return of the bird migration season has touched off new worries over how a serious outbreak could interrupt business in many parts of the world simultaneously, perhaps for months on end.

The World Health Organization has confirmed 173 cases of the avian flu virus in humans, most of whom had close contact with diseased birds. Of those, 93 people died, almost all of them in Asia. Vietnam has been particularly hard hit. In January, though, the first human cases were confirmed in Turkey — far from the origin of the virus in central China.

And in recent weeks, officials in several European and African countries have confirmed the virus in wild or domestic flocks of birds. While avian influenza does not now readily infect humans or spread among them, scientists are worried that the virus could soon acquire that ability through normal biological mixing, setting off a disastrous human pandemic.

Yet despite this threat, many companies have only rudimentary contingency plans in place. In a survey of more than 100 executives in the United States by Deloitte & Touche, released this January, two-thirds said their companies had not yet prepared adequately for avian flu, and most had no one specifically in charge of such a plan.

"Business is not prepared for even a moderate avian flu epidemic," the report concluded.

In contrast, corporations in Southeast Asia have made more headway, in part because the avian influenza virus has been circulating in birds in Asia for years. Also, Asian companies learned in the 2003 outbreak of Sudden Acute Respiratory Syndrome, or SARS, that even a small infectious outbreak could have devastating economic consequences, bringing commerce in Hong Kong, Singapore and Beijing to a near standstill.

A recent survey of 80 corporate officials at an avian flu seminar held by the American Chamber of Commerce in Hong Kong found that nearly every company had someone in charge of avian flu policy, and 60 percent had clearly stated plans that could be put in place immediately. These included provisions for employees to work at home to prevent the spread of disease in the office, and for relaying warnings to workers by text messages to mobile phones.

The lack of corporate preparedness elsewhere has "enormous implications," the Deloitte report said.

"A pandemic flu outbreak in any part of the world would potentially cripple supply chains, dramatically reduce available labor pools," the report said. "In a world where the global supply chain and real-time inventories determine most everything we do, down to the food available for purchase in our grocery stores, one begins to understand the importance of advanced planning."

Among the prepared, HSBC, a global bank that started as the Hongkong and Shanghai Bank and remains the dominant bank in Hong Kong, has an especially detailed plan for avian flu, drawing on its experience with SARS. The company has been making preparations for employees to work from home, but is also preparing to divide work among multiple sites, an approach that appeared in only 37 percent of the plans in the American Chamber survey.

The hope is that if the flu races through the staff at one site, another site may be spared. During SARS, the bank activated an emergency center at the opposite end of Hong Kong's harbor and sent 50 bond traders there with instructions that they were not to see anyone from the head office even at social occasions.

In the survey of companies conducted by the American Chamber of Commerce in Hong Kong, provisions of corporate contingency plans ranged from allowing some employees to work from home — the most popular strategy, included in 72 percent of avian flu contingency plans — to the outright closing of offices, included in 32.5 percent of plans.

Other methods to prevent spread include canceling face-to-face meetings in favor of teleconferencing, and installing germ-killing hand washes in offices. Many companies also proposed more stringent health monitoring of employees, families and company visitors. In Singapore, throughout the SARS outbreak, many businesses required temperature checks before entering buildings, as a way to screen out those who might be ill.

Some of the most important planning involves not employee health, but how to continue to deliver vital services in a crisis. Time Warner's Cable News Network is making preparations to stay on the air from different locations.

"If there should be something that quarantines the production center here in Hong Kong, we could hand off to London and Atlanta," Stephen Marcopoto, president of Turner International Asia Pacific, a Time Warner unit in Hong Kong, said.

Time Warner is also working to create a mechanized cart that could automatically load tape after tape into a satellite transmission system, so it could keep stations like Cartoon Network on the air — a boon if children were homebound for months.

But many corporate plans are painted in fairly broad brush strokes, part of general disaster planning. And many companies refuse to discuss details.

"As other global players, we have a global business continuity program in place that covers a wide range of contingencies, including flu pandemic," said Klaus Thoma, a spokesman for Deutsche Bank in Frankfurt, who said that details were privileged company information.

Likewise, FedEx, the express delivery service, has been "monitoring the situation for some time," said Sandra Munoz, a spokeswoman for the company in New York, noting that FedEx had "the flexibility within our system to make the necessary adjustments to minimize any impact to our customers, regardless of the situation." Without going into details, FedEx said that it had developed contingency plans "down to every district or market here in Asia Pacific," said John Allison, a company representative in Hong Kong.

But Mr. Layton says he is worried that many companies are not thinking about the unique problems that pandemic flu raises. "They are adapting existing risk-management strategies, which are fine, but they really have to go beyond that," he said.

But even in hot spots in Asia, not all companies are readying themselves for an outbreak. In the Guangdong Province in south China, which was the epicenter of SARS and where avian flu is already widespread, a recent survey by the American Chamber of Commerce found that 54 percent of members had made no preparations.

"We're trying to push them to develop plans," said Harley Seyedin, the Guangdong chamber's president.

1 comment :

Razib Ahmed said...

It is a dilema for the government and companies. On the one hand, they want to ensure that work goes on smoothly while on the other hand, they do not want to invest in developing infrastructure and public health service.