Chinese factories building a variety of merchandise from toys to electronic parts and automobiles remain in limbo as the country’s government tries to contain the coronavirus. The lockdown forced some, like Google, to temporarily close offices and Apple to close stores -- shutting production, disrupting supply chains, and even delaying quarterly financial reporting.
Francis Bassolino, managing partner at Alaris in Shanghai, China, said it’s too early to determine the chain reaction and how this story will play out in the next three to four weeks.
“The numbers will be more apparent at the end of March on the economic impact of coronavirus,” he said.
China's workforce was scheduled to return to work on Jan. 3, 2020, but many have not because people are trying to stem the transmission of the virus and the internal restrictions on travel in China are so strict, he said.
Bassolino, who has lived in China for 30 years, said if the workers don’t get back to work within the next two weeks, because many manufacturers use a just-in-time manufacturing model, companies could see shortages likely this summer.
Amazon sellers that rely on parts and products manufactured in China are concerned that idle manufacturing facilities will interrupt supply chains. Those interruptions could eventually slow advertising spend.
Bernie Thompson, founder of device company Plugable Technology, has some concerns about running out of his top-selling laptop docking station by the end of this month. He also runs an in-house advertising agency called PPC Ninja that supports about 20 companies. In aggregate, his company spends about 90% of his nearly $1 million annual advertising budget on Amazon.
When products go out of stock, Amazon’s platform automatically pauses advertising and no longer participates in the keyword auction.
“When we’re bidding for 'triple display docking station' and the product goes out of stock, we would no longer bid for those keywords on the advertising platform,” he said.
When asked whether that budget would be allocated to another product, Thompson said, "No, our money would be off the table because we manage it by advertising cost of sales. It’s not budget based."
Thompson doesn’t see much disruption for advertising in the short term. If the coronavirus continues for another two months, he said, then it would disrupt the supply for many products and eventually hit the advertising industry.
Moving manufacturing out of China wouldn’t necessarily make a company immune to the fallout from the coronavirus, Thompson said. Many parts still come from China even if the company manufacturers in Taiwan, as EETimes details in its special edition of the lockdown in Wuhan.
Colin Sebastian, senior research analyst at Baird Equity Research, said analysts are looking at supply disruption as a potential risk.
“Keep in mind that Amazon as a marketplace has a deep pool of selection from millions of sellers, so they shouldn’t be as disrupted as specific brands or merchants with a narrow focus,” he wrote in an email to Search Marketing Daily. “There is a potential headwind to their advertising business from a prolonged disruption, although given that it’s an auction model, there are many brands and sellers who aren’t as exposed to China that can step in to purchase those ad slots.”
Honda Motors -- which has an assembly plant in Wuhan where the outbreak reportedly began -- shut down the flow of products for the Lunar New Year holiday, but could remain closed for a longer period of time. Reports suggest plants would reopen on Feb. 17.
Earlier this month, Chinese search engine Baidu and streaming media company iQiyi rescheduled reporting on fourth-quarter and full-year earnings for 2019, citing the coronavirus as a reason after asking employees to work from home. The two companies will report later this month.