In an economy that’s becoming increasingly global, foreign problems such as deadly coronavirus — now officially named COVID-19 — can have a powerful impact on San Diego businesses.
“The concern is we are a very international community,” said economist said Gary London, senior principal at London Moeder Advisors. “We have significant business ties with Asia…”
Whether it is education, travel or business, there are deep connections both economic and personal with China and Asia.
In China, the COVID-19, which has resulted in the closure of many businesses and the quarantine of entire cities, has interrupted the ability to carry on business relations with companies in the U.S.
Dealing With Uncertainty
On Feb. 12, the World Health Organization said the number of new cases of COVID-19 in China had stabilized, but the apparent slowdown is being viewed with caution. Victory Innovations a company that makes cordless electrostatic sprayer that is used to sanitize airliners, has been unable to produce new products since the outbreak, said San Diego resident Clifford Wright, the company’s founder and the inventor of the sprayer. The product, which is sold throughout the U.S. and in more than 40 other countries, is manufactured in China. Unfortunately, the COVID-19 epidemic has brought production to a halt.
Most of the 600 people who work in the Victory Innovations factory in Shenzhen, near Hong Hong, have been quarantined and can’t report to work.
“China is so closed up right now,” said Wright, whose company has offices in Minnesota and Ohio. “We have to get back to manufacturing. Sanitation is a multibillion-dollar business. We have thousands of users and we won’t be able to keep up with the demand in our own backyard.”
Earlier this month, San Diego-based chip maker Qualcomm reported that the COVID-19 in China could disrupt manufacturing and sales in the mobile phone industry. In a conference call with investors, Qualcomm CFO Akash Palkhiwala said there is uncertainty about the impact of the health crisis on the supply chain and handset demand. The company expressed concern for its employees in China.
An Anticipated Drop in Sales
The Carlsbad-based Calloway Golf Co. announced Feb. 10 that it expects a $25 million negative impact on sales and a $13 million impact on earnings before interest, taxes, depreciation, and amortization in 2020 because of the COVID-19. The company also anticipates an impact on its supply chain, the near-term demand for products in China, and potential demand in markets outside of China.
The San Diego region will experience some degree of downturn in its tourism and hospitality industries due to the COVID-19, predicts Kamlesh Mehta, chair of the management and marketing department at National University.
Robert Rauch, president and CEO of RAR Hospitality, which operates nine hotels within San Diego County, agrees,
The pandemic “will have more of an impact on tourism than any other industry,” Rauch said. “I don’t see it as being something that causes a recession. I don’t think it’s going to be long-lived. Historically, if you go back to SARS epidemic, it had an impact short-term on travel to and from China. This is having a major effect on business between China and the U.S.”
After Mexico and Canada, “China is arguably our largest producer of room nights in the international community,” Rauch said. “The silver lining is the biggest travel time for the Chinese is between April and October. We might dodge the bullet if we can resolve the travel restrictions no later than April 1. But the first quarter is definitely going to hurt.”
At the University of California San Diego, all non-essential travel to China by students and faculty has been suspended because of the epidemic. UCSD is attended by more than 5,600 students from China, the greatest number within the UC System, said spokeswoman Christine Clark. Students throughout the San Diego campus have been warned about the virus and asked to report any symptoms.
Within UCSD’s Rady School of Management, typically about 130 students are from China, said Shaun Carver, the assistant dean of graduate programs. They usually remain in San Diego for 10 to 12 months as they complete master’s degree programs. Right now these students don’t know when they’ll be able to return home.
“If you look at the situation, why would you want to go (to China) right now?” Carver asked. “There are people who are quarantined in their apartments, entire cities. The government is doing everything it can do to try to contain this.”
If the coronavirus isn’t contained soon, it could affect Chinese enrollment at the Rady School beginning in September. The Rady School sometimes sends groups of students to visit China, but no students or faculty members are there currently, Carter said. “They’re all accounted for.”
The San Diego County Regional Airport Authority and the Port of San Diego have reported no problems with cargo shipments related to the COVID-19 outbreak. London, of London Moeder Advisors, said how seriously the epidemic will harm San Diego’s business community depends largely on how long the health crisis lasts.
“People are not working in China so orders are not being filled,” he said. “One can only hope that the virus is contained.”