CLEVELAND, Ohio — The Shanghai office of Cleveland-based Jergens, Inc. has been eerily silent for about two weeks after government measures there, aimed at curtailing the novel coronavirus, caused commerce in many parts of China to slow.
“Phones don’t ring at your order desk,” said Jack Schron, Jr., president and chief executive officer of the manufacturing company headquartered in the Collinwood neighborhood. “Sales and support staff have been told that they have to work from home. Even if we get orders, we can’t fill them. We don’t have warehouse operations.”
But Schron isn’t alarmed — yet. He is more concerned about the next few weeks.
Business is usually slow during the Chinese New Year holiday, which the government extended until Sunday, Feb. 9, in hopes of containing the new virus’ spread.
Schron, like most with business interests in China, will be waiting to see how long it takes for things to return to normal.
The potential for Ohio residents to suffer economic impacts from coronavirus probably far outweighs any health risks. Because of globalization, many Ohio companies rely on China, either for products or sales. If the Chinese economy is impaired long enough, Ohio’s economy could suffer too.
Many companies operating in Ohio, including those in the auto industry, rely on parts from China for products produced here. Others, like Jergens, which makes clamping and work-holding systems and precision electric screwdrivers, export to China. Jergens setup its Shanghai office, which has nearly 20 employees, to sell products made at its Cleveland and Chicago plants.
Ohio received about $13 billion in Chinese imports in 2018, more than from any country, according to the Ohio Development Services Agency. These included industrial machinery, vehicle parts and apparel. Ohio sent $3.6 billion in exports to China in 2018, including transportation equipment, chemical and agricultural products, according to the Office of the United State Trade Representative. Ohio only exported more to Canada and Mexico.
If coronavirus impacts China’s economy for a month or more, there is a good chance Ohio’s economy could be affected, said Oded Shenkar, a global business management professor and expert on China at The Ohio State University’s Fisher College of Business. Ohio is the 11th largest importing state, which adds to its vulnerability.
“The Chinese economy is a substantial part of the global economy, 17% or so,” he said. “If it slows down considerably, it's a huge disruption, sooner or later, to everyone.”
Should China’s slowdown continue until the end of February, global Gross Domestic Product could be reduced by 0.8% in the first quarter, according to an analysis by IHS Markit. This economic impact would be greater than with the SARS outbreak in 2003, when China had the world’s sixth largest economy, the analysis found. Now, it ranks second.
Since then, more of the U.S. auto supply chain has shifted to China, said Susan Helper, a professor at the Weatherhead School of Management at Case Western Reserve University and an expert on the globalization of supply chains. Often small components, such as sensors, are made abroad. Their absence is great enough to shut down Ohio auto production, she said.
“Ten, and even five years, ago we made a lot of those products here,” Helper said. “Then the work moved to China. The U.S. doesn’t now have the capacity, in the short term, to tool up and start making those things again.”
Wuhan, the center of the coronavirus outbreak, is home to many auto plants, including those making parts used in the U.S. General Motors has a plant there. Wednesday, GM Mary Barra described things at the plant as being “a very fluid situation,” during an investor conference, according to CNN.com
Ford Motor Co. has operations in China, but not in Wuhan. “We are monitoring the situation very closely. At this time, our plants are operating as scheduled,” said a Ford spokeswoman in an email.
Shifting production from China to countries such as Vietnam or Cambodia isn’t feasible because they probably can’t handle the volume, OSU’s Shenkar said. He said many Ohio businesses that rely on products from China probably won’t be able to go long before needing new shipments because of the popularity of Just in Time inventory, a strategy of receiving goods as they are needed.
Schron doesn’t want to experience any economic fallout from coronavirus, but he said Jergens could probably weather it. The company doesn’t rely on parts from China for production, which Schron said could give Jergens an advantage over competitors, should coronavirus’ impact increase. Also, China isn’t Jergens’ only market.
“We have plenty of market in the United States and plenty of market in India, but ignoring the market in China wouldn’t be right,” he said. “There are more than a billion people, and they can buy an awful lot of product.”
Even Ohio companies more dependent on trade with China are being attentive, but not anxious about, coronavirus’ impact, says Jamie Karl, a managing director at the Ohio Manufacturers’ Association.
“Anytime there is uncertainty with a market of that size, there is reason for concern,” he wrote in an email. “As of now, the only notable impacts we’ve heard from members are those concerning business travel to China. However, should the situation deteriorate, it will affect Ohio companies using Chinese inputs, as well as those selling to Chinese customers — and this would have a noticeably negative effect on Ohio’s overall manufacturing economy. We are continuing to monitor the situation.”
Pierre David, a professor at Baldwin Wallace University School of Business and an international logistics expert, said U.S. companies have tended to be guarded in their reactions to coronavirus, an approach that could have economic implications. He used the example of airlines halting flights between the U.S. and China. Also, he knows of Ohio companies stopping shipments from China, fearing that they could be contaminated by coronavirus, even though the Centers for Disease Control and Prevention says there is “likely very low risk of” spreading coronavirus in this manner.
“They are acting very, very cautiously,” David said. “A company cannot be faulted for having too strong of a reaction, but they could easily be faulted if they didn’t react soon enough, early enough or broadly enough.”
Though many companies may risk financial woes because of coronavirus, some will profit. These could include those making face masks, hand sanitizers and other products people perceive as helping prevent the spread of the virus. Akron-based GOJO, which makes Purell hand sanitizer, is among them.
“We believe we are in a strong supply position and are working with our customers to ensure they have the products they need,” wrote a GOJO spokeswoman in an email. The Food and Drug Administration recently issued the company a warning, however, saying that it had made unsubstantiated claims about the product possibly lessening the potential for infection from flu and other illnesses.
Jergen’s Schron said not relying on Chinese-made components may work in his company’s favor as manufacturers, who do, may not be able to meet demand.
“It’s going to actually open up an opportunity for us if coronavirus continues for months and months,” he said.
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