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Amin Mawani is academic director of the health industry management program at the Schulich School of Business at York University in Toronto.

The coronavirus has now spread to thousands of people worldwide, including three cases in Canada, but the actual numbers could be much higher.

The new coronavirus is now known to be infectious in its incubation period before the symptoms show, making it harder to contain. The incubation period could range anywhere from one to 14 days. Without symptoms, those infected may not know they have the virus, but may still be able to spread it. While the symptoms of coronavirus may take their time in manifesting, the impact on corporate bottom lines may become visible much sooner.

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A major lesson learned from SARS (severe acute respiratory syndrome) – both in Canada and abroad – is that the financial contagion can be much larger than the health contagion. For example, the 2003 Canadian experience with SARS resulted in 44 deaths and a $2-billion loss to the economy.

The need to plan for a financial contagion is even more critical for individual businesses since what may be a tolerable adverse impact on a large diversified economy may be a catastrophic loss to a single undiversified business. For example, some Toronto-area restaurants closed down during SARS never to open again.

While the coronavirus is less fatal than SARS (2.9 per cent for coronavirus compared with 9.6 per cent for SARS), it has a much more rapid and widespread transmission rate of infectivity. The World Health Organization (WHO) estimates that the average person infected with coronavirus can spread the infection to an average of 2.5 people. A recent British study estimates this number to be in the range of 3.6 to 4. Add to this the fact that residents from China increased their travel from 20.2 million trips in 2003 (the year of SARS) to 149.7 million trips in 2018. How the spread and fatality rates play out will determine both the health and financial contagion of a coronavirus outbreak. Businesses need to start planning now.

While the health-care community is much better prepared now compared with the SARS era, it is not clear how well businesses have prepared themselves for new potential disruptions. The rapid spread of this new virus and the associated uncertainty resulting from dormant symptoms can keep both customers and employees away from businesses. The history of SARS reminds us of a significant decline in the demand and supply of non-health goods and services as consumers and employees focused on their well-being instead of their normal consumption and production activities. Airlines, hotels and restaurants were hurt the most during SARS as customers gave up on discretionary spending to avoid contact with potentially infected individuals.

During an outbreak, employees could stay away from their workplaces as a result of direct illness, family care responsibilities and fear of contracting the virus in a workplace perceived to be unsafe. Since employees are the revenue and profit drivers in most corporations, prolonged absenteeism would have a significant adverse impact on business revenues and profits. Companies should assess how their operations would survive a 20-per-cent to 25-per-cent absenteeism rate among its employees during an outbreak, and the impact it may have on the bottom line.

Being prepared for an outbreak includes planning for more employees to work from home, updating sick-leave policies, stockpiling masks and gowns, maintaining adequate levels of inventory and ensuring supply chains are robust. Preparation includes cross-training employees for several different tasks in order to reduce the impact of absenteeism. Businesses also need to establish communication channels to advise employees to remain vigilant while reducing the hype, and ensuring that sensitive proprietary business information is not leaked to competitors and other outside sources.

Businesses could view such preparation as an employee-retention tool and the costs analogous to overtime pay during the outbreak. The benefits from retaining employees during a critical outbreak can be significant in terms of both retaining old customers and winning new customers. Failure to retain employees during an outbreak can be devastating if customers switch to competitors who are better prepared, often with no intention of returning to their former suppliers. Marketing professionals claim that it takes five times as much effort to get a new customer as it takes to retain an existing one.

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Businesses prepared for an outbreak could enjoy a significant comparative advantage (and market share) at the expense of the unprepared. This could also be hard to reverse later once the outbreak has been contained since reputation benefits (or costs if not prepared) often outlast the crisis. Businesses with a reputation for being prepared during an outbreak may enjoy comparative advantage even if an outbreak never occurs.

Finally, engaging employees in a planning exercise for a virus outbreak is a part of an organization’s corporate social responsibility. Managing employees by viewing them as internal customers can contribute to their job satisfaction, retention and productivity. Keeping employees productive and healthy keeps their interests aligned with those of the shareholders.

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