Image credits: Edgar Zuniga Jr
News Article

Global Shortages an Opportunity for Local Business

By Alessa Flores | Thu, 04/30/2020 - 12:40

COVID-19 is expected to affect the economy in three main ways, according to Deloitte: disrupting the supply chain and the market, financially impacting companies and financially impacting markets. Regarding the financial impact on companies, it has been highlighted that not all companies will suffer equally, although all will be economically affected by the COVID-19 crisis.

The companies that will be most affected are MSMEs, since they are those that could be in trouble to keep their employees and even their business going, according to the Interamerican Development Bank (IDB). It is estimated that there are more than 4.1 million MSMEs in Mexico, that contribute 42 percent of Mexico's GDP and generate 78 percent of the employment, according to INEGI figures.

Official quarantine measures are preventing consumption and are restricting the number of people inside a space, which hindered the growing movement of consuming locally. This initiative, which started on social networks, encouraged people to care for local production and to contribute to the economy of their city, even their own neighborhood, by not to consuming from large grocery stores but from independent retailers.

According to Michel H. Shuman, author of the book Going Local, buying local does not mean closing yourself to the outside world but appreciating local businesses that use their resources sustainably, employ locals and serve local consumers. For Shuman, this makes business more self-sufficient and less dependent on imports. 

If we see it at a large scale, companies that depend on imports from China and other countries have been strongly affected by this situation. Likewise, the slowdown in economic activity and transport restrictions in the affected countries are expected to affect the production and profitability of global companies, particularly in the manufacturing sector and in the raw materials used in manufacturing.

Companies like Rappi, Uber Eats and Didi Food have joined the local consumption initiative in an effort to support struggling businesses. For example, while orders from large restaurants and other establishments would entail an extra charge of MX$30-80 (US$1.26 -3.35) for shipping, companies like Rappi are waiving these fees when clients consume from locals. This has ignited a debate between buying local and buying globally. The London-based think tank New Economics Foundation made an analysis of what happens when people buy local or buy globally. The results showed that when people buy locally, money stays in the community twice as long as when they buy globally. Therefore, the New Economics Foundation concluded that “those purchases are twice as efficient in terms of keeping the local economy alive." 

"Buy local" campaigns also have other functions. According to Susan Wit, Executive Director of the E.F. Schumacher Society, these efforts serve to alert the community about gaps in the local market. People can observe which are the items that others purchase more frequently when going to the supermarket. This means there is a local business opportunity to produce that good and sell it in your community. The pandemic and the need for people to buy antibacterial gel, facemasks and other items has once again sparked the debate between buying local and buying global. While a note from El Universal reports that there is a shortage of raw material to make gloves, face masks and antibacterial gel in large cities in the country such as Mexico City, Guadalajara and Monterrey, it has been observed how local stores and independent people have taken advantage of this gap to do business. A materials and reagents laboratory in Reynosa, for example, began making antibacterial gel, as well as mouthguards and gloves that were scare in the city, according to El Universal. The owner of this store started selling what people demanded to the point of not only selling through retail but also selling large quantities for businesses, schools and even health centers.

The data used in this article was sourced from:  
Deloitte, El Universal, INEGI, E.F. Schumacher Society, Rappi, Uber Eats, Didi Food, Michel H. Shuman
Photo by:   Edgar Zuniga Jr
Alessa Flores Alessa Flores Senior Journalist and Industry Analyst