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How Can Business Weather the Storm? Big Data, Relations with China, Retrenchment and Agglomeration

Experts in the College of Business examine the impact of the COVID-19 pandemic.

It was at the end of February, when Italy became a COVID-19 hot spot that Charles Stevens first realized the novel coronavirus was going to deal a major long-term blow to the business world.

“Business has faced other pandemics in the past decade or so—SARS, Ebola, H1N1—but they’ve all tended to be fairly localized,” says Stevens, an associate professor of management at Lehigh. “They could make temporary adjustments, compensate for a temporary downturn in one part of the world, but otherwise carry on with only relatively minor course corrections.”

This was different.

“It’s like a pilot of a plane who sees a thunderstorm ahead—no big deal, just fly around it,” Stevens says. “Until the pilot realizes that there are thunderstorms everywhere and no way around and has to figure out the best and safest and hopefully fastest way through.”

In less than a year, the pandemic has ravaged families and communities around the globe, wrecked economies and cost the jobs of millions of Americans. 

As everyone continues to navigate a volatile time, questions abound. How will the pandemic affect businesses, their employees and supply chains in the foreseeable future? Will employers curtail travel? Will white-collar workers continue to work from home? Such uncertainties are complicated by the efforts of American companies to thread the needle of U.S.-China relations in light of the pandemic, the trade war and China’s crackdown on Hong Kong. 

Ahmed Rahman saw signs that business supply chains would be seriously altered when Wuhan, China—the major industrial trading hub where the virus originated—was locked down on  Jan. 23.

“Seeing the drone pictures survey a completely deserted Wuhan in January augured a troubled future for international business relations,” says Rahman, associate professor of economics at Lehigh.

Images of Wuhan hit home with David Peng, who is originally from China and chairs the new Department of Decision and Technology Analytics (DATA) in Lehigh’s College of Business.

“You could see how bad it was. They were building so many new hospitals because the hospitals and health care providers were completely overwhelmed,” Peng says. “If China is shutting down, it affects the U.S.”

Even before the coronavirus, globalization had already hit pushback from the trade war between the United States and China. The U.S. placed certain tariffs and other trade barriers on the Chinese in 2018 and the Chinese retaliated.  

“That was already starting to make it more costly and more difficult to trade goods and services across borders,” says Stevens. “One of the big questions will be: After COVID, what attitudes will people take? Are they anxious and excited to get out and reconnect with the world and travel and look for opportunities around the globe, personally, professionally and otherwise? Or do people retreat back into their shells a little bit and say, ‘Let’s be more cautious about reengaging with the world?’

“It's going to be bumpy going forward,” says Stevens.

Big Data to the Rescue

Fortunately, “big data” can act as a kind of high-tech crystal ball to help countries and companies navigate all the uncertainty.   

“This pandemic is going to accelerate the digitization of business,” says Peng, the DATA chair.  “With increased digitization, a growing amount of data becomes available to organizations.”

Vast amounts of data are generated from business transactions, smart devices, industrial equipment, cameras and sensors. This data comes in a variety of formats, ranging from structured data such as relational databases to unstructured data in the forms of text documents, emails, videos, audio and images. This data can be used to solve problems and support decision-making in areas ranging from supply chain management to health care, and beyond.

Few companies have revolutionized supply chains more than Walmart, which has invested billions in the technology infrastructure needed to track inventory and forecast demand. While numerous retail giants like JCPenney and Stein Mart have filed for bankruptcy since the pandemic hit, Walmart is going strong, with its online sales in the U.S. jumping 74% in the first quarter of 2020. To meet that demand, data analytics will be even more vital to a nimble supply chain, coping with everything from border closings and state-mandated shutdowns to distressed suppliers.

Real time demand data, along with other data sources not transitionally utilized, such as social media sentiment data, enables retailers to sense the demand much more rapidly and accurately than traditional forecasting techniques, such as time series forecasting, says Peng. “Analyzing large amounts of real time or near real time data also allow companies to have greater visibility into the supply chain,” explains Peng. “This is critical for the supply chain of personal protective equipment in fighting the pandemic.”

“If you find a shortage or disruption, you can respond quickly,” Peng says.

In the fight against coronavirus, researchers are learning more about the symptoms of the disease through information provided by more than 4 million users of an app called the COVID Symptom Tracker. It has helped scientists recognize the effects of the virus on patients with such pre-existing conditions as diabetes and obesity, according to The Scientist Magazine.  As a way to speed research efforts, the National Institutes of Health is using analytics from the National COVID Cohort Collaborative database. The Collaborative database allows credentialed researchers to see vast amounts of clinical data culled from electronic medical records of people tested for the novel coronavirus or those who had related symptoms—all while protecting patients’ identities.

Inevitably, information sharing and efforts like COVID contact tracing spark questions about privacy.

“There are examples of countries like China that go through the extreme of mandatory tracing,” Peng says. “That’s effective but it’s not in our value system.”

In searching for a balance between respecting privacy and curbing the pandemic, Google and Apple developed an app for contact tracing that used Bluetooth rather than cellular systems to collect data about whom a COVID-19 patient had been in contact with, but without identifying that patient’s whereabouts. “With the responsible use of technology and big data,” says Peng, “we can carry out contact tracing that successfully balances privacy and public welfare.”

Future with China

Over the summer, Beijing enacted a new national security law, which pro-democracy activists say aims to stamp out opposition in Hong Kong to China’s ruling Communist Party. The law further constricted civil liberties in the former British colony and put more muscle behind squelching political protests. 

The United States is ... even stronger when we have other powerful allies that are on the same page.

Charles Stevens

China’s new national security law is likely to hasten retrenchment. American and Chinese economies are too interconnected for the United States to end all commerce, but companies may choose, for example, to move their Asian headquarters from Hong Kong to places like Singapore, Stevens says.   

It was a little over two years ago that the U.S. levied tariffs and enacted other sanctions against China over allegations relating to unfairly subsidizing Chinese businesses and for theft of technologies. But for such measures to work, the United States should better target sanctions to get results, Stevens says. 

“The U.S. needs to articulate specific complaints, to issue clearly stated goals about the kinds of changes we want to see from China regarding commerce,” he says. “And then to have a measured response: If there is a violation, there will be certain punishments. If there are improvements, some of those sanctions will be rolled back.” 

Meanwhile, Washington needs to call on America’s allies to join the effort. 

“China does business with many companies around the world,” Stevens says. “No matter how powerful the United States is, we’re even stronger when we have other powerful allies who are on the same page.” 

Stevens takes the long view on tensions with China over the coronavirus, the trade war and the crackdown on Hong Kong. 

“I’ve seen a number of news outlets that have compared the situation with China to a new Cold War, like we had with the Soviet Union,” he says. “To me, one of the key things for us to remember going forward is we didn’t win the last Cold War because of an actual war or trade barriers or things like that. We won that Cold War because we were able to show that our system was the better system, providing more income, more happiness and more freedom than the competing system.”

The U.S. can keep itself competitive by investing in infrastructure, education and technology, Stevens says. 

“How do we show ourselves and the world that the model we have here is the better one? Because that’s going to be the way we attract the best and the brightest, and we continue to stay on top. Not just ratcheting up tariffs on China.

“It’s going to be important to show this is the way that will improve lives, it will grow the middle class, it will provide opportunities for people,” Stevens says. “And if that’s the case, China will be less and less of a concern because they will either need to change what they do or get left behind.” 

Cost of Retrenchment 

Professor Rahman fears the pandemic will accelerate anti-globalization forces that have been ascendant in recent decades. 

“This could be the final nail in the coffin for the big global expanse that we have witnessed since the end of World War II,” he says. “Those who have been in support of having supply chains closer to home, will obviously have a big leg up now.” 

Retrenchment could have major implications for U.S. debt.

“The United States has been running a trade deficit since about the 1980s,” Rahman says. “And there’s a particular reason why we can do that. I always ask my students how is the United States so special that we can owe the rest of the world, year after year after year. It’s because the rest of the world uses our dollars to make their own exchanges with other countries. The U.S. dollar is the international currency.” 

If the global currency shifts away from the dollar, to say, the Yen or the Euro, that could trigger a debt crisis for the U.S. 

“Retrenchment potentially creates a situation where there is a tremendous strain on the demand for the dollar,” Rahman says. “If countries then start deciding ‘we don’t need the dollar,’ the demand for the dollar collapses. And then, guess what, all the debt we owe the rest of the world comes due.” 

Fewer Jobs for Everyone

Immigrants are among who “have been hit hard by this pandemic because they are in those positions where working remotely is simply not an option,” Rahman says. He has been researching which occupations can be done remotely. Recently, his work was published in Covid Economics, a news outlet devoted to COVID-related studies. 

If the pandemic leads to more anti-immigrant, anti-globalization policies, Americans are likely to see greater labor shortages for jobs at the lowest rungs of the ladder. 

“So far, we have managed to maintain adequate supplies of the kinds of services that lower-skilled workers provide, but much of that is simply because demand for such services has plummeted and concomitant lockdowns have been enforced,” Rahman says. “Food services, cleaning, security, entertainment, recreation, repair, health services—the consumption of all these has been dramatically reduced over the last several months. Given that some of the move towards remote work for high-skilled workers will likely be permanent, many low-skilled jobs in hospitality, building services and transportation will be permanently destroyed.” 

“But in areas of food services, home cleaning, child care, entertainment, recreation and health provision, demand will surely return once the pandemic ends,” he says. “At that point, filling these positions with willing native workers may prove challenging.”

If wages in those service areas rise to attract more workers, then naturally costs will also increase.

“Anti-immigration policies are likely to keep these costs high,” Rahman says. “Such policies are also likely to spur automation, helping to eventually tamp down consumer prices but permanently eliminating countless jobs at the same time.” 

That means there will be fewer jobs for everyone—immigrants and native-born Americans. 

“From my perspective, attempts to block migrant workers to help spur native job growth is a fool’s errand,” he says. 

Illustration of a person on Zoom

Irony of Zoom

While virtual meetings have been vital for white collar workers continuing to do business, Rahman is skeptical they will completely replace traveling for work. In-person meetings that produce “knowledge spillovers” are key to innovation, he says.  

“One thing that I think economists like myself appreciate is how the interconnectedness of the world has facilitated so many good things in terms of the ability to trade, to share ideas, to share capital and other inputs necessary to production,” Rahman says. A consequence of curtailing globetrotting could be the slowing of invention and technological breakthroughs. 

 “With fewer face-to-face interactions, something is lost,” Rahman says. “I fear that because of the two-dimensionality of our communications now, it’s going to lessen our productivity. (See Office Space Extinction?  pg 6.)

“I’ll give you an example: I have co-authors who live in Abu Dhabi and in Europe,” Rahman says. “We pine for those conferences, where we’re actually physically together and can have 10-minute talks about papers we’re working on, ideas we’re formulating, complex formulas we’re developing or equations we’re solving. In-person collaboration is so much more beneficial than working together months on end via the computer screen.” And there lies the irony of relying more on technology to live and work. “On one hand, we have greater connectedness than ever before,” he says, “but the connection seems shallower.”

Story by Margie Peterson
Illustrations by John W. Tomac

 

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_____________________________

Also see 'Office Space Extinction?'

McKay Price, director of the Goodman Center for Real Estate at Lehigh, addresses agglomeration economies in a pandemic.

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