Coronavirus COVID-19

Crisis Response
Updated: February 11, 2020

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Executive summary (February 11, 2020)
2019-Novel Coronavirus Acute Respiratory Disease (COVID-19) has caused over 44,000 confirmed cases and over 1,100 deaths as of February 11, 2020.
About 99% of the cases have been in China. The transmission rate appears to be 1.5-2x higher than the flu, but may fall with public health measures. About 20% of
cases have required hospitalization, and 0.1-4% of all confirmed cases have been fatal. A robust Chinese and global response has helped slow disease spread.
China is attempting to resume economic activity in waves, as migrant workers (>15M in Shanghai and Beijing alone) return back from the Lunar New Year
holiday. The first priority is infrastructure, basic supplies (food, water, electricity, gas, communications, transport, government), & medical supplies. The government is
allowing factory restarts if they can ensure a safe working environment and adherence to stringent processes, incl. checking employee travel & exposure history.
This will likely lead to a restart of manufacturing activity, but may take weeks. Other than Hubei (518 cases per million inhabitants), all of China’s other
provinces have less than 20 cases per mission. China appears to be betting that this relatively contained number will not worsen dramatically with a controlled restart
of its factories. For instance, Ford, Honda, Hyundai, Kia, Nissan, Tesla are all restarting their China plants before February 14. This will help mitigate the impact of
the outbreak on supply chains globally in the automotive sector. However, full productivity may prove elusive: Some returning workers are subject to 2-week
quarantines; schools from KG to university remain closed – a challenge to working parents; personal concern about the outbreak remains high, amplified by the
death of Dr. Wenliang; public travel and return to work could drive a spike in new cases, which will significantly set back the restart. New rules to avoid contact
between workers (no meetings, lunchtime rotas, work from home) will affect productivity.
In addition to evaluating a restart, some manufacturers are temporarily moving their manufacturing, but most companies are focused on a smooth
restart vs. evaluating supply alternatives. Some manufacturers are shifting temporarily to Southeast Asia (e.g., Philippines) to account for a short-fall in their
production, but there is a limited ability to do this because lower SE Asian factory capacity and component customization makes the Chinese supply base sticky
In our base case, China sees a partial recovery: Supply chains restart but the service sector remains dampened. Manufacturing may return over the next 4-6
weeks but the service sector (e.g., retail, transport) will remain dampened – possibly until May – until personal concerns are alleviated sufficiently for public
gatherings to resume. We believe that personal concerns will remain elevated until some combination of the following conditions occurs: Case growth remains at
current levels in spite of migrants’ return and factory restart; existing drug cocktails prove to be effective; case growth peaks; fatality rates are confirmed to be lower
than current estimates and more comparable to the flu.
What companies need to do: Besides the basics on protecting employees & following health advisories, now is the time to establish a systematic nerve center to
respond to the crisis. The first task of this center is to assess the company’s financials in the potential scenarios, and ensure that there is a robust response for
supply chain, inventory management, working capital & balance sheet management. Next, the company should consider establishing a portfolio of tactics based on
clear triggers for when to act. On the supply chain side, a number of quick actions may be needed: for instance - Optimize limited production determining highest
margin and highest opportunity cost / penalty production, Pre-booking air freight or rail capacity, look to ramp up now on alternative sources if supplies are in Hubei,
watch for extending lead times to gauge performance and capacity against supplier promises, use after sales stock as bridge to keep production running
McKinsey & Company 2
COVID-19 – basic information

Coronaviruses are common causes of respiratory infections. They have previously been implicated Public Health Emergency
in viral outbreaks, including SARS-CoV and MERS-CoV, but are also responsible for some common of International Concern
colds. Coronavirus COVID-19 is a new virus, without any known prior human infection. (PHEIC)

Declaration by the World Health

Our knowledge on the disease characteristics are evolving daily1…
Organization recognizing the
outbreak as a public health risk
requiring a coordinated
international response.
Transmission rate Disease severity Rate of people with
infections dying The World Health Organization
declared a Public Health
1.5-2x Up to 20% <1/50 Emergency of International
Concern on January 30, 2020.2

higher transmission patients have Patients are at risk of Historically, declarations of

compared to the flu3 severe disease dying, with refined data PHEIC led to a number of other
societal responses, such as
to come additional travel advisories,
1. These numbers reflect the latest thinking at time of writing; information is expect to evolve rapidly and change; this should not replace the latest available information
market fluctuations and cross-
through public health officials
2. Statement by the World Health Organization available online here
country collaboration.
3. Evidence on exact numbers are emerging, however expected to decreased as viral containment measures intensify and treatments are developed

Source: Literature review, World Health Organization McKinsey & Company 3

COVID-19 – transmission and spread

COVID-19 transmission status Reproduction number

The average number of individuals infected from each infected individual

Russia H Measles
Finland
Sweden
Canada G Polio
UK Germany High (>4)
France
Viral control and
Smallpox K
Spain
Italy China
Japan USA improved case
Nepal D Chickenpox
India Republic of Korea management will
Thailand
UAE Cambodia COVID-19 MERS-CoV J push COVID-19
Vietnam
Sri Lanka Philippines Medium
Singapore
Malaysia F SARS-CoV to behave more
(2-4)
closely to recent
Australia Influenza and
C Zikavirus Zikavirus
Influenza H2N2 1957 E Influenza 1918 I
Number of confirmed cases B outbreaks
A Influenza H1N1 2009 Ebola (West Africa 2014)
1-2 Low (<2)
3 - 10
11 - 100
101 - 500
> 500 Low (<2%) Medium (2-15%) High (>15%)
Hubei province ​China

Country, area or territory with cases Case fatality ratio2

Proportion of deaths among confirmed cases

Virus has spread across Identification of cases early in the disease (i.e. with fewer symptoms), intensification
over 25 countries of viral control methods, and deployment of treatments (when available) will drive
down the reproduction number and reduce case fatality
1. Latest numbers are available from a number of sources, including daily situation reports from the World Health Organization available here
2. Case fatality numbers are reflective of the outbreak setting and depend on a number of factors, including patient's age, community immunity, health system
capabilities, etc. This graphic aims to offer a broad comparison

Source: World Health Organization McKinsey & Company 4

 COVID-19 – impact to date
COVID-19 SARS Ebola

LAST UPDATED: Feb 11, 2020 Relative severity Rationale (examples)

Impact to date
Mild Severe
44,000+1 Confirmed cases
Recovery
At the time of writing, about ~20% experience severe
symptoms from COVID-19 (e.g., require hospitalization)

1,100+1 Deaths Long-term health impacts unknown

Disability Ebola – 1-year disability rate of 78%3, while most patients
Clinical
25+1 Countries affected effects with SARS who recover suffered few long-term effects2
(biological)
Current estimates of ~1-2% fatality ratio2 (by comparison:
Death
Estimated impact LAST UPDATED: Feb 4, 2020 Influenza: ~1-2%, Ebola: ~50%, SARS: ~5-10%)

Estimated annual Pathogens that spread via droplet or aerosolized routes pose
~$90B+2 economic impact based
Mode of
transmission
much higher risk than those requiring direct physical contact
with infected fluids (such as Ebola)
on ~0.1% shock to
global economy
High public awareness, in line with other outbreaks of
Estimated reduction in international concern (e.g., Ebola)
Individuals
~0.2-0.8pp2 2020 annual GDP Proliferation of information (and mis-information) enabled by
social media, 24/7 news cycle
growth in China
Widescale corporate response, including mass closures,
1. Latest numbers are available from a number of sources, including daily situation reports supply chain rerouting, scaling back or stoppage of
from the World Health Organization available here Social operations, travel bans – across sectors
Corporations
2. Highly preliminary - plausible global impact as of February 4, 2020; total economic GDP responses
impact of prior pandemic potential viral outbreaks; heavily dependent on severity of Certain industries (e.g., automotive, tourism) facing acute
outbreak, effectiveness of response and recovery; exacerbated by China’s significance in negative impact
and integration with global economy. China GDP growth impact based on compilation of
analyst estimates, reports (Bloomberg Economics, The Economist, Moody’s, Reuters, New
York Times, Financial Times, analyst reports) Unprecedented response by Chinese government authorities
Governments –affecting ~60M people in China; border closures by other
3. Jagadesh et al, Disability Among Ebola Survivors and Their Close Contacts in Sierra Leone:
A Retrospective Case-Controlled Cohort Study, Clinical Infectious Diseases (Jan. 2018) countries

Source: Press search, literature review McKinsey & Company 5

Key factors that will influence the containment and
severity of impact of COVID-19
Differentiating factors relative to the SARS epidemic in 2003 (not exhaustive)
Exacerbating factor
Clinical effects Faster spread of cases - within 5-week window, the total number of cases had already surpassed the total case counts for SARS-CoV
(which occurred over 6-7 months) and MERS-CoV cases (which spanned years) Mitigating factor
(biological)
Increased individual mobility with higher population density (relative to 2003) likely to increase spread
Asymptomatic transmission might be possible; it did not occur with SARS-CoV and was rare (but did occur) with MERS-CoV; no
confirmed evidence of airborne transmission
Total economic impact of
Healthcare system significantly improved in China since SARS, with increases in public funding for health, improved access to
healthcare and modernization of the healthcare infrastructure COVID-19 dependent on:
Improvements in genome sequencing assets, enabling rapid characterization of the virus (e.g., identifying and quarantining the Effectiveness and speed of
origin, tracking genetic changes during the epidemic) control measures (e.g.,
Improvements in vaccine development technology and creation of Coalition of Epidemic Preparedness Innovations “CEPI”, the containment)
leading vaccine development group that led (and funded) the development of the vaccine for MERS
Ability to and effectiveness of
Increased flow of information, driving awareness (e.g., > 9x access to internet today versus 2003); significant media attention treatment – supported by a
Socio- Individuals Significant propagation of misinformation given uncontrolled communication number of tailwinds (e.g.,
economic strengthening of healthcare
Modern transportation infrastructure accelerates spread of infectious disease; launch of high-speed rail in 2008 has quadrupled
responses public transport passenger traffic from 2013 to 2019; timing of outbreak coincided with Lunar New Year, largest annual human migration systems in China,
aggressiveness of government
Wuhan and Hubei as central hub for multiple industries, e.g., automotive manufacturing (with plants for Nissan, PSA, Honda, GM,
action) and
Companies Renault, etc.), high-tech (e.g., semiconductor); broader China impacted as other provinces had had factory shutdowns
China as significantly larger contributor to global economic growth today vs 2003 (4% vs. 16% share of global output); Wuhan was Headwinds (e.g., supply chain
forecasted to grow faster than national average in 2020 dependency on Hubei) and
Greater global connectivity and supply chain dependency on China and reliance on Chinese consumption to drive growth – tailwinds (e.g., strength of
certain sectors heavily exposed (e.g., >$250Bn Chinese tourist spend a year); Chinese contribution greater for certain sectors (e.g., contingency planning by
hospitality, tourism, aviation, luxury goods) that suffered the most during the SARS outbreak; in general, greater economic fragility corporations, criticality of
suppliers in Hubei)
Aggressive actions to curtail spread of COVID-19 at a scale never seen before in history – e.g., restrictions on travel, school /
restaurant / company closures; effective quarantine of over 50M people
Governments
Early recognition of importance of data sharing, evidenced by more openness in rapid publication and dissemination of information
(e.g., viral genome)
Likely underreporting of cases given challenges in data collection, shortage of testing kits and reagents in Hubei
Medical supplies, beds, facilities in short supply, exacerbated by lockdown preventing supplies from reaching hospitals; quick actions
taken (e.g., building two additional hospitals in <10 days) likely insufficient to meet demand
McKinsey & Company 6
Three possible epidemiological scenarios
Stage of Outbreak Epidemic Pandemic
virus spread
Sustained
transmission in 3+
Sustained regions
transmission in at
Multi-regional case least 2 regions Active and sustained
identification viral transmission in
Potential Regional extension Virus has spread to
Virus has spread to a multiple countries
evolution of multiple continents
outbreak to Localized spread Initial outbreak still number of countries, with multiple new foci
pandemic has limited spread but with limited evidence
Virus spreads to of transmission
Localized outbreak with increased of sustained
surrounding areas regional transmission transmission
Emergence of more Scenario 3 : Global pandemic
observed
cases than expected Similar to 1918 Spanish Influenza pandemic
at baseline Scenario 2 : Foci of disseminated
transmission • Sustained COVID-19 transmission across
Scenario 1 : Contained mostly in China Similar to 2003 SARS outbreak most countries and/or individuals, e.g.,
Similar to 2014-2015 Ebola outbreak where 10+ countries, large population at risk
almost all cases were localized in three • Sustained transmission demonstrated in • Situation becomes new “life as usual”,
West African countries subset of countries similar to other periodic outbreaks (e.g.,
Possible • Weaker health systems increasing risk flu)
scenarios • Transmission is limited beyond mainland exposure
China • Majority of countries are successful in
Potential • Cases in Hubei province peak March - limiting number of cases
scenarios May, then progressively decline
• Case fatality decreases as understanding
evolves and treatments emerge

McKinsey & Company 7

Potential evolution of the macroeconomic situation
Examples of different scenarios to consider as part of contingency planning
1 Quick recovery
• Impact of disease acute for Wuhan and
Hubei province, but disease is largely
contained; severity and mortality remain in
low single digits or less
Potential • New cases peak by February 29th (Wuhan
quarantine commenced January 23rd)
scenarios
• Supply chains temporarily affected, but
economic activity resumes across most
sectors / industries within weeks or months
• Lagging consumer demand recovers
• Severity and mortality rate for COVID-19
“What you will continue to stay in-line with (or below)
have to those of the flu
believe” – • Individuals can reasonably protect
not themselves from infection from COVID-19
exhaustive through simple and inexpensive precautions
(e.g., washing hands, face masks)
• Post-LNY does not result in significant
spike or partial restart of transmission in low-
impacted regions (e.g., Shanghai, Shenzhen)
• Economy resilient against softening in
consumer demand in Hubei/Wuhan
2 Partial recovery (BASE CASE) 3 Global slowdown
• China restarts economic activity within next 4-6 weeks, • “Straw that breaks the camel’s back” scenario –
in a controlled setting, especially in certain provinces COVID-19 virus outbreak as trigger for global
(Guangdong, Shandong) and in certain sectors critical to economic recession
global supply chain and/or less vulnerable to outbreak
• Widespread transmission in a number of countries
impact (e.g., semi-conductor, automotive); acute impact
persists for several months in Hubei province and in • Disease peaks in Q3 2020, with exponential growth in
tertiary sectors such as travel, hospitality, leisure additional key hot spots (e.g., areas with poor
• Consumer confidence takes longer to return, esp. in infrastructure, but central transportation hubs)
China, with consumer spending remaining muted until • Companies make irreversible decisions such as
Q2 2020, but rapidly recovering once disease is wholesale shifts in supply chain, distribution channels –
perceived to be “under control” (e.g., fatality rate lower, supply chain broken, especially in certain sectors
rate of case growth down, containment measures
effective ex-Hubei).
• Impact to the global economy is muted – strong Asia
demand overall combined with a strong US economy
averts a sustained global slowdown
• Near-term treatment options not effective or not readily • No disease-modifying interventions (e.g., vaccine, drugs
available – vaccine development and at-scale production to lower risk of acquisition or duration of viral shedding) are
takes 1+ year but trials commence within the year found
• Economic restart and return of workers does not prompt
• Global spread of virus including additional self
second spike in cases
sustaining sites outside of China; global governments
• Effective means to prevent transmission (e.g.,
unable to contain/quarantine the virus in the near term
factories implement effective screening and containment
measures) • Global economies unable to react or sustain near-term
• China and more broadly the world learn to live w/ “2 solvency in face of global quarantines
flus” situation, pressing through while vaccine
development takes year(s)
• Economic pressure plus more insulated industries
means that economy “restarts” in those sectors first
McKinsey & Company 8
 Impact on manufacturing by sector Economic exposure
Low High
(by metric1)

Economic exposure Assessing level of disruption

Computer, electronic, optical/ Electrical
Supply chain integration Demand
Within the manufacturing equipment/ Other machinery:
Chinese share Chinese % of Chinese share
industries, certain sectors ▪ There are concentrated operations near the
of global intermediate Chinese share of of global
Sectors appear to be more vulnerable affected areas (e.g., ~290 of about 800 plants
Most impacted exports good exports gross output consumption
than others as a result of named in Apple’s global supplier list are
Computer, electronic, optical products 30% 28% 49% 38% higher level of anticipated located in regions that have delayed returning
disruption (e.g., idle plants in to work)
Electrical equipment 28% 21% 59% 54%
affected regions) combined
Other machinery and equipment 28% 14% 47% 44% with greater global economic ▪ Most electronic components are heavily
exposure. customized, making it challenging for
Motor vehicles and trailers 5% 7% 33% 33% factories to relocate outside of China in the
Furniture, safety, fire, other 34% 10% 27% 18% short term
Overall, vulnerability can be ▪ The intermediate products are deeply
Other non-metallic mineral products 29% 21% 58% 57% assessed by the following integrated in the global technology supply
Rubber and plastics 18% 14% 35% 38% criteria: chain
Basic metals 1% 7% 52% 46%
▪ If most operations are
in/near affected areas
Mining and quarrying 1% 1% 25% 29% Motor vehicles:
▪ If products are highly
Chemicals 12% 9% 42% 40% customized, requires ▪ The 2019-nCoV will be more harmful to the
skilled talent, and/or automotive industry than the 2003 SARS
Paper and paper products 11% 8% 30% 30% epidemic as China has since established
specialized
Other transport equipment 9% 21% 30% 30% equipment/infrastructure itself as an automotive powerhouse and
now serves as a major supplier to global
Pharmaceuticals 4% 5% 35% 39% ▪ If industry already under automakers
stress
Textiles, apparel, and leather 41% 32% 58% 46% ▪ More than 60% of Chinese automotive light
▪ If China serves a major role vehicle production is based in provinces
Coke & refined petroleum products 7% 5% 22% 23% in the global supply chain currently affected by government mandated
Food, beverages, and tobacco 7% 4% 33% 34% ▪ (for where China produces production shutdowns, leading to an estimate
intermediate goods) if the of 9 bn USD productions losses per week
Fabricated metal products 0% 19% 30% 29%
industry tends to keep a ▪ The outbreak comes at a time of already
Wood and wood products 19% 9% 40% 34% higher level of component slumping sales, heightened trade tensions
25% inventory and dampened forecasts
Printing and media 11% 4% 26%
Agriculture, forestry, and fishing 4% 1% 31% 32%
1. color scale based on percentiles within each metric McKinsey & Company 9
Source: IHS Markit; McKinsey Global Institute analysis
Is China restarting activity? The answer varies by province

COVID-19 Cases Majorly impacted province, Large industrial base, can Urban center, driver of
per million (Feb 08, 2020) likely to have longer be engine of faster Chinese consumer
Bubble size is proportional to size of manufacturing sector economic impact manufacturing recovery behavior
518
Hubei  Hubei is the worst impacted province, with more than 500 cases per million
people. The taxed healthcare situation in several areas, especially Wuhan, will
20 Zhejiang mean slower return to work and ramp-up of productivity, and sustained acute
Jiangxi
impact across sectors (both manufacturing and services), unless cases peak by
18 end of February
Beijing
16 Chongqing  Guangdong, Jiangsu and Shandong are all large industrial bases with
Hainan Hunan lower cases per million. Key goals for them are to maintain public health while
14 Anhui
attempting a restart of manufacturing activity. The largest of these is Guangdong,
Shanghai
12 which has provided detailed guidelines for how companies can return to work – a
Henan
regime of stringent processes, checking travel and exposure history of
10 Heilongjiang Shaanxi Guangdong
Ningxia
employees and ensuring a safe environment; factor restarts commencing work
Guangxi
8 the week of February 10, but slow and staggered – reports of 10-30% employees
Fujian
Tianjin return to date
6 Qinghai Jilin Jiangsu
Sichuan  Beijing and Shanghai are the highest profile urban area to monitor for
Shanxi Shandong
4 return to work and resumption of consumer demand. The earliest leading
Yunnan
Guizhou indicator for economic recovery is whether the return of nearly 16M migrant
2 Inner Mongolia
Xinjiang Hebei
Gansu
drives a spike in cases over the next 5-10 days (post-Lunar New Year); if it does,
Liaoning it could set recovery back by months, since it will be taken as a sign that
0
0 200 400 600 800 1,000 1,200 1,400 restarting economic activity is difficult without risking public health. Near-term
GDP (2018) focus on basic services (e.g., utilities, hospital access); economic restart and
$B USD economic restart based on greater possibility to work from home given higher
significance of white collar work

McKinsey & Company 10

 Leading indicators

Clinical & Economic leading indicator dashboard for COVID-19

Clinical indicators to monitor Economic indicators to monitor

Confirmation of Week of 2/10

# of site outside of Wuhan with confirmed 3rd gen Signals of supply
sustained 6 transmission (severity)1 TBD % of expected migrant workers returning to urban centers 5
chain restart in
transmission China (production 5 # of reported potential production shifts to Southeast
outside of China Evidence of significant transmission via aerosol
shifts / restarts, flow Asia (decisions pending further development of virus) 6
No route
of travel) 3 # of confirmed plant restarts in key industrial centers 7

Scale and # of countries with new confirmed cases in the last TBD % of electricity consumption in key industrial centers compared
estimated peak 25 14 days (breadth) to 2019 historic values5
Full
of outbreak, in
Partial 2 # of Top 10 trading partners with free flowing travel8
China and China: Ratio of last day’s confirmed cases to max 4
0.63 daily confirmed cases None
outside of China 4

China: % increase of daily confirmed cases 1 week

- after migrant worker return2
Signals of demand TBD # of malls open in key metro areas5
restart in China
China: % increase of daily confirmed cases 1 week Cell phone activity density in key metro areas5
- after factory restart2 (urban foot traffic, TBD
domestic commercial Major companies reported with WFH policies in key
7 metro areas9
Late- activity)
Expert consensus on peak of case count in China3
Feb 5% (-0.7%) S&P 2020 China GDP growth estimate
Sasseur REIT (owns 4 outlet malls across China) week
Global confirmed case (compound daily growth %)4 +0.62% over week value
CapitaLand REIT (owns 12 malls across China) week
2/8 to 2/10 8 -0.65% over week value
2/5 to 2/7 13

1. Germany, China, including Hong Kong, Singapore, UK, France , other (cruise ship off the coast of Japan); 2. Available Tuesday/Wednesday during week of Feb 17 at provincial level; 3. Verified with 3 sources. 4. China updated definition of confirmed cases and no longer
count patients who tested positive but do not exhibit symptoms, which may impact these statistics; 5. Metrics pending access to additional data sources. 6. Aisin Seiki Co, Toyota Boshoku Corp., Fujitsu General Ltd., LPP. Ftech shifted production to Philippines on 1/30/20;
7. Hubei, Shandong, Jiangsu, Guangdong; 8. United States, European Union, Japan, South Korea, Australia, Vietnam, Malaysia, Brazil, India, Russia; Full represents no restriction, partial represents restricting some travelers or ports of entry, none represents complete
closure of ports of entry 9. Tencent, Microsoft, Didi, Audi, Alibaba, DJI, and Honeywell. Baidu is requiring workers to meet specific quarantine conditions before returning.

McKinsey & Company 11

Source: WHO Situation Reports; National Bureau of Statistics of China; McKinsey Global Institute; OCED Data, Johns Hopkins CSSE, London School of Hygiene and Tropical Medicine, Columbia University, Xian Jiaotong University
 Leading indicators

Confirmed and planned factory restarts in China

China’s West Coast is leading the recovery
Y Factory restart planned (date)
G Factory restarted (date)

2019 nCoV (per million) (2/8)

517.7 2.2 Heilongjiang
Y FAW-Volkswagen Automotive (2/17)
Y Toyota (2/17)
Jilin G FAW-Volkswagen Automotive (2/10)

Y BMW (2/17)
Liaoning
Xinjiang Inner
Mongolia Beijing G Beijing Benz Automotive Co. (2/10)

Tianjin G Lenovo (TBD)

Hebei
Shanxi G Suzuki Motor G Changan Ford Mazda Engine Co. (2/10)
Ningxia
Shandong Corp. (2/10)
Y Suzuki Motor Corp. (TBD)
Qinghai
Gansu
Shaanxi Jiangsu G SAIC VW Automotive (2/10)
Henan
G Tesla Giga Shanghai (2/10)
Tibet
Anhui Shanghai
Y Shanghai Lingang Joyson Safety Systems Co., Ltd (TBD)
Hubei
Sichuan
Zhejiang Y Honda / Dongfeng Motor (2/13)
Chongqing
Unknown Province Jiangxi Y PSA Group (2/14)
Hunan
SAIC VW Automotive (2/17) Fujian Y Nissan / Dongfeng Motor (2/14)
G Foxconn (2/10) Guizhou
Sony Corp (2/10) Y Lenovo (TBD)
Taiwan
G Lenovo (2/10) Yunnan Guangdong Y Cargill (TBD)
NEC Corp (2/10) Guangxi
Sharp Corp (2/10) G Jiangling Motors Corp. (2/10)
Isuzu Motors Ltd. (TBD)
Y Toyota (2/16)
General Motors (2/15) Y Mitsubishi
Hainan Motors (2/16) Y Honda (TBD)
Cargill (2/10) G Foxconn (2/10)
Honeywell (2/10) G Lenovo (2/10)

McKinsey & Company 12

Immediate actions to take in response to COVID-19
Detail follows

PRELIMINARY

Get control & craft trigger-based portfolio of actions
Set up a nerve center dedicated to managing the COVID-19 outbreak.
Ensure high decision authority to allow for speed of decisions
Defined tailored scenarios for the company, and evaluate impact to
P&L and balance sheet in each situation
Define portfolio of actions that are appropriate under different
scenarios, triggered by a small number of practical leading indicators
Conduct a table-top to ensure full alignment on triggers and actions
under different scenarios by the leadership team
Improve supply chain robustness
Understand exposure by determining critical components, defining buffer and
current inventory, creating tier-transparency, cost scenarios and priority component
lists and action plans
Take action to address anticipated shortages including using available
inventory and alternate transport options
Ensure supplies, materials and personnel required to restart production
including PPE source, employee communications, etc.
Understand additional options including supplier task forces, moving supply to
non-China countries if multi-sourced, and/or developing new supplies

Protect employees & create purpose

Improve financial resiliency & customer base
Draw up & execute a clear plan to support employees that complies
with applicable health advice and guidelines Ensure adequate access to credit in conservative scenarios
Be proactive and transparent when communicating with employees, Define long-term high growth customer segments and execute programs to
providing relevant updates on clinical and business impacts drive loyalty
Assess opportunities to strengthen purpose and morale among
employees

Consider ways to support response efforts (e.g. financial, R&D,

medical staff, etc.)

McKinsey & Company 13

Immediate supply chain actions to take in response to COVID-19

Take action to address Ensure resources Understand

Understand exposure anticipated shortages required to restart additional options
1. Determine truly critical components 7. Optimize limited production 13. Work with supplier to 16. Determine what portion
(i.e. parts required to operate a line) determining highest margin and source PPE for of supply can be swung
highest opportunity cost / penalty production lines to another site (non-
2. Define current inventory buffer and
production operating in China China) if shutdown
locations1
(government is requiring persists based on
3. Work with Tier 1 suppliers to assess
8. Pre-book air freight2 / rail capacity glasses, gloves and sourcing strategy
interruption risk from Tier 2 as required by current exposure masks) (single, dual, multi)
onwards 9. Collaborate with all parties to 14. Clearly communicate to 17. Identify ways to
4. Identify origin of supply (Hubei/ jointly leverage freight capacity, employees on infection expedite qualification
Wuhan v. Guangdong) to identify new/alternate supply sources, etc. risk concerns (e.g., process and/or insource
severity of risk 10. Look to ramp up now on disseminate facts about
virus known to date from 18. Determine possible
5. Conduct scenario planning to alternative sources if supplies are geographies and
understand financial and operational in Hubei credible source)
supplier shortlists
implications in prolonged shutdown 15. Consider short-term utilizing tools like
11. Watch for extending lead times to
(scenarios 2 and 3) stabilization for McKinsey clean-sheet
gauge performance and capacity
6. Work with S&OP to get 3-6 month against supplier promises suppliers (e.g., low- tool, SC Designer, and
accurate demand signal segmenting interest loan) to allow for a Source 4 Growth3 in case
likely to be impacted demand to 12. Use after sales stock as bridge to faster restart alternate supply is
determine required supply keep production running required

1. Buffer stock from Chinese New Year may provide a cushion and potential false sense of security. Impact likely to be felt first in JIT supply chains (e.g. automotive).
2. Given costs, airfreight might not be an option for many industries; availability is already limited
3. Source 4 Growth is a comprehensive database with supplier coverage in every major global region with capability to generate supplier shortlists based on requirements and industry.
McKinsey & Company 14
Appendix

McKinsey & Company 15

Bringing the best toolkit to bear on global pandemics
Our Global Health Practice, with McKinsey Crisis Response, bring proven toolkits to pandemic management

Pandemics pose a major threat to global health,

social development, and the economy. Frequently
they threaten our most vulnerable communities
High-functioning nerve centers, and end-to-end,
trigger-based contingency planning, can go a long
way towards improving effectiveness and speed of
scarce resources in an emergency pandemic
situation
Through our work with over 150 public and private
crises around the globe in the last decade alone,
as well as over 40 engagements disease outbreak
management, McKinsey’s Global Health Practice,
together with McKinsey Crisis Response, have
developed multiple tools and approaches that
support more effective responses that helps
organizations navigate pandemics more effectively

McKinsey & Company 16

A snapshot of our work in pandemics & crisis response
Over 150 cross-sector crises globally in the last 15 years, including 40 in disease outbreak management

2015: Zika

1 Supported governments across multiple Latin American

countries to respond to Zika, both in the acute phase and in
building resilience against the disease

2
2014: Ebola
Worked on multiple aspects of the global response, including
emergency operations, funding, planning and R&D coordination 4
3

3
2014: MERS-CoV
Supported immediate response & contingency planning for the
1 2
2014 MERS CoV outbreak
5

4
2009: Influenza
Helped develop a plan to address the threat of pandemic
influenza, with a focus on sufficient vaccine production
c

5
2019: Twin Cyclones
Helped an NGO improve its Emergency Operations Center
after a twin cyclone in Mozambique

McKinsey & Company 17

Our team of experts in epidemiology, crisis management, supply
chain, and stress testing are here to support you
Crisis management experts
Mihir Mysore (Partner, Houston)
Global leader of the Crisis Response
Practice with extensive crisis management
experience across multiple sectors on
topics including crisis preparation,
simulation, and response
Linda Liu (Partner, New York)
Core leader in the Crisis Response
Practice serving public sector and
Fortune 100 clients on enterprise risk
management, long-term strategic
planning, crisis response &
preparedness, regulatory remediation
David Chia (Senior VP, Miami)
Core leader in the Transformation
Practice and expert in travel,
transportation, logistics, and healthcare
strategy and operations in the crisis
management context
Ophelia Usher (Expert, New York)
Experience in private and public sector crisis
management with specific expertise in threat
identification, stakeholder assessment and
strategy, and business continuity
Global public health, inc. epidemics
Matt Wilson (Senior Partner, NYC)
Overall leader of the Global Health Practice focused on
infectious diseases, and healthcare systems and services
Matt Craven (Partner, Silicon Valley)
Leader of our work in Infectious Diseases; Medical doctor
with deep expertise in outbreak response; leadership role
in the WHO’s Ebola Response in Sierra Leone; work on
multiple other outbreaks with McKinsey
Michael Conway (Senior Partner, Philadelphia)
Former leader of the Global Public Health Practice
and work on multiple prior outbreaks, including Zika,
MERS, influenza and Ebola
Sanjiv Baxi (Engagement Manager, Silicon Valley)
Leader in the Healthcare Practice with significant
expertise in Epidemiology, serving clients on strategy
and operations topics
Marie-Renee B-Lajoie (Engagement Manager, Boston)
Global public health expert focused on response
preparedness operations and supply chain
Practicing emergency physician with 10+ years experience
in humanitarian response
Supply chain risk management
Knut Alicke (Partner, Stuttgart)
Leader of Manufacturing & Supply Chain
Practice, with deep expertise across sectors
including travel, logistics, advanced
industries, pharmaceuticals
Anna Strigel (Associate Partner, Berlin)
Leader in Manufacturing & Supply Chan
Practice, with experience across advanced
industries, automotive
Global macroeconomics and stress testing
Arvind Govindarajan (Partner, Boston)
Leader of Risk Dynamics, deep expertise
across sectors including banking,
gas/energy
Sree Ramaswamy (Partner, DC)
Leader in McKinsey Global Institute; deep
expertise in economic analysis and policy,
productivity, tech
Ezra Greenberg (Associate Partner, Stamford)
Leader in Strategy & Corporate Finance; deep
expertise in macroeconomic analysis and
forecasting
McKinsey & Company 18
How we could support you over the next 2-3 weeks

Stand up central ❑ Stand up a central team to maintain a real-time view of the situation and oversee and coordinate response
activities
“nerve center” ❑ Set up emergency response leadership construct including clearly defined decision authority
❑ Create stakeholder maps to understand potential impacts on employees, customers, and suppliers
❑ Create communications plan (e.g., employee FAQ) for information dissemination

Define tailored ❑ Define range of 3 potential scenarios for how the situation could evolve based on evolution of epidemiology and
socioeconomic responses
scenarios and ❑ Conduct stress testing to assess impact to P&L, balance sheet, for each scenario, in coordination with financial
conduct stress test planning and other functions, as necessary

Create portfolio of ❑ Develop contingency plans and mitigation actions for likely scenarios (e.g., if supply chain exposure, engage
Tier 1 to create mapping of Tier 2+)
mitigating tactics ❑ Identify leading indicators – e.g., triggers indicating economic restart, resumption of consumer demand – and
create real-time dashboard that displays curated, relevant information

Conduct table-top ❑ Create and conduct table-top exercises for executive / operating committee to align on triggers and actions to
take, by scenario
exercises

Supply chain ❑ Form central transparency hub to identify critical components and coordinate with Tier 1 suppliers to map
out Tier 2+ suppliers
sourcing hub
McKinsey & Company 19
Example: Nerve center
Illustrative
Executive Committee
Scenario Planning
Key  Define relevant scenarios and
activities conduct modeling to understand
implications for organization
 Model economic impact to the
organization at the local,
regional, and global levels
 Develop contingency plans
 Develop prioritized list of risks
and mitigation plans
Members  Strategy
 Finance
 Economists
 Commercial, procurement,
supply chain, and logistics
1. Includes procurement, supply chain, and logistics
COVID-19 Response Lead
Situation Analysis
 Source and maintain fact base 
on evolving situation
 Perform relevant research on
media and monitor threats and
leading indicators of situation
 Review and synthesize relevant 
surveillance, communication and
monitoring data
 Data
 Finance
 Economists
 Leads overall response effort
 Has authority to act on behalf of organization
 Steers and provides oversight, day-to-day guidance
Advisory  Provides advice to ensure
(Legal, Human Resources) adherence to regulations
Operations1 Communications
Serve as ‘one source of truth’  Develop and implement
for operations fact base communication strategies at
 Maintain view on resources, global, national, and regional
operational performance, and levels
status of each  Develop stakeholder-specific
Provide relevant inputs to the communications plan
economic impact model owned  Coordinate internal and
by Scenario Planning external communications
including media social media
 Operations  Communications
 Procurement  Investor Relations
 Supply chain  Human Resources / Employee
 Logistics Relations
McKinsey & Company 20
 Chapter › Topic

Industry deep dive: Automotive industry

COVID-19 poses significant challenges to the automotive industry with a pronounced impact on OEMs
Overview Sector-specific considerations Examples

 China is the world’s largest automotive market with 25.7  The COVID-19 will be more harmful to the automotive  Impact on top global automakers
million cars produced in 2019, compared to 2.3 million industry than the 2003 SARS epidemic — The coronavirus outbreak will force carmakers in China
cars in 2001, an 11x increase in less than two — COVID-19 has already outpaced 2003 SARS epidemic in to slash production by about 15% in the first quarter
decades both number of confirmed cases and number of deaths — More than 60% of Chinese automotive light vehicle
 Global automakers have a substantial footprint in — In 2003, China had not established itself as an production is based in provinces currently affected
Wuhan, Hubei Province, and China more broadly automotive powerhouse and did not serve as a major by government mandated production shutdowns
— Wuhan and the rest of Hubei province account supplier to global automakers — Based on idled plants and lack of component supply from
for 9% of total Chinese auto production. » Chinese consumer interest in purchasing cars and car tier-chain, losses could reach 9 billion USD per
General Motors, Nissan, Renault, Honda and PSA ownership was in its infancy week1,2
(owns Peugeot) have large factories in Wuhan
» Chinese car sales increased during ARS epidemic as — Nissan, VW, Ford, Tesla, GM, Honda, Daimler, BMW,
» Nissan produces ~1.5M cars/year in Wuhan people bought cars to avoid taking public transit Suzuki and Toyota suspended operations in China
» Honda produces ~700K cars/year, equal to » While Chinese automotive production declined during through February 9, 2020
50% of its production capacity in China the SARS crisis, overall automotive sales and » Ford, Tesla reopened factories this week and will
— Volkswagen has 24 plants making cars or parts revenue were increasingly positive ramp up to pre-outbreak capacity over weeks
in China, accounting for 40% of its production  The outbreak comes at a time of already slumping sales, » GM, Toyota, Honda, Suzuki, Nissan, BMW anticipate
— GM operates 15 assembly plants in China with heightened trade tensions and dampened forecasts re-opening factories in the coming days to week
its Chinese partners — China auto sales fell 2.8% in 2019 amidst global trade  Impact on global supply chain outside of China
— Ford has 6 assembly plants and Fiat Chrysler tensions, the first decline in nearly two decades — Hyundai suspended production at its plants in South
has 2 plants in China — Global automakers forecasted further sales declines in Korea because the coronavirus disrupted its supply of
— BMW has three factories in Shenyang, in 2020, prior to knowledge of the coronavirus outbreak parts
northern China  Prolonging of the crisis could prove financially disastrous — Nissan’s plant in Kyushu, Japan is undergoing
— Toyota has 4 car and 8 component factories in for global automakers, causing depletion of parts reserves "production adjustments" due to a shortage of Chinese
China and supply chain bottlenecks parts
 German engineering firm Bosch, the world's largest — Fiat Chrysler and Ford unprofitable in China; GM facing — Renault suspended production at a plant in Busan,
auto component manufacturer, has dozens of plants decreased profits in the region South Korea, due to disruptions in supplies of Chinese
in China including two in Wuhan — Inventory surplus estimates differ but range between 2-6 parts
— Other parts suppliers including Schaeffler, ZF weeks; any delays in production beyond this timeframe — Fiat Chrysler may suspend production at a European
Friedrichshafen, Faurecia and Valeo have (including ramp up time) could signal deep financial losses production plant due to supply chain disruption
significant operations in the country
1 Estimate of immediate vehicle production losses assuming ongoing production halts in China and lack of parts outside of China - could be compensated over the FY through increased production in later quarters McKinsey & Company 21
2 Effect on global OEMs based on missing supply from Chinese exports of automotive parts based on following: ~9% of global trade volume of automotive (Tier-1) parts, assuming 50% average import share, negation of additional effects (e.g. affected Tier-x-suppliers from China, production stops based on single missing
parts and mitigation efforts of OEMs) Source: Press reports, S&P Global Ratings, IHS, Chinese Association of Automobile Manufacturers
 Industry deep dive: Automotive industry – OEM segmentation

Southwest China North China Northeast China

Supplier base for commercial vehicle
components
▪ IVECO, Dongfeng and Sha1qanxi
Automobile Group have set up plants
and developed local supplier base
Supplier base for French OEMs
▪ PSA, Faurecia, Valeo established their
plants in China, attracted and
developed local supplier base
Supplier base for Korean OEMs
▪ Hyundai, Kia, Hyundai Mobis, and
Mando established their plants in north
China, attracted and developed local
supplier base
Supplier base for German OEMs
▪ BMW, VW, Bosch and ZF have
established their plants, attracted and
developed local supplier base
East China
R&D capabilities
▪ Suppliers including ZF, Yanfeng
Visteon, Magna, Bosch set up their
R&D centers in Shanghai and nearby
regions

South China
Central China
Supplier Base for European and local
Supplier base for Japanese automotive
automakers
▪ Toyota, Honda, Denso, Aisin, Yazaki,
Hubei Province - General Motors, Nissan, Renault,
established their plants in Guandong,
Honda and PSA Group (owns Peugeot)
attracted and developed local supplier
all have large factories in Wuhan
base
Supplier base for auto components
New energy vehicle suppliers
- German engineering firm Bosch, the
▪ BYD buildup world’s largest fuel cell
world's largest auto component
factory in Foshan, Guangdong
manufacturer, has dozens of plants in
Province
China including two in Wuhan
Electronic components
▪ Guangdong province alone produces
about 20% of world’s electronics
industry products

SOURCE: China Automobile Industry Association, McKinsey McKinsey & Company

| 22
Industry deep dive: Luxury Goods
COVID-19 is derailing Chinese luxury spending, signaling likely sustained losses for sector in 1H 2020
Overview
 In 2000, the Chinese market represented
only 2% of luxury sales; by contrast,
Chinese consumers delivered more than
50% of the global growth in luxury
spending between 2012–2018
 In 2020, Chinese spending represents an
estimated ~35% of the luxury goods
market, and is projected to grow to 40%
of the market by 2025
 China’s luxury spending will nearly double
between 2018 and 2025, as it is expected
to deliver 65% of all new spending
globally
— There is an explosion in upper-
middle-class households, which
continue to purchase in luxury
categories even as growth in China’s
economy has eased
— 70 percent of consumers will be
doing their luxury spending
overseas, a result of an increasing
affinity for outbound travel
 The vast majority of luxury goods profit
in China is secured by the top 20
percent of companies, creating a
polarized market dominated by a subset of
“super winners”
Source: Press reports, McKinsey China Luxury Report 2019, IATA
Sector-specific considerations Examples
 COVID-19 will have a greater impact on luxury goods than the SARS  Given widening travel restrictions,
epidemic did in 2003 companies are anticipating that
— China saw recovery in the luxury goods segment in the second half of decreased spending patterns of
2003 once the SARS crisis abated, fueled by months of unmet demand Chinese customers will negatively
impact sales over coming weeks
— Since 2003, China has grown from the sixth-largest to the second largest
economy, accounting for 39% of global economic expansion in 2019  Local football examples:
— 24 of Burberry’s 64 stores in
— Recovery may not be as resilient in the current scenario; China’s 2019
Mainland China are closed with
growth rate of 6.1% is the lowest since 1990, indicating greater fragility
remaining stores operating with
 Travel bans, flight cancellations since the emergence of COVID-19 could
reduced hours and seeing
result in more detrimental impact than decreases in local footfall
significant footfall declines
— More than 50 countries or territories have imposed travel restrictions and
— European luxury retailer operating
tightened visa requirements on Chinese travelers
in China reported foot traffic
— Dozens of global airlines have canceled or suspended flights to China, in decreased from between 600-
some cases, until the end of March 2020 800 people in a day, to no more
 Domestic footfall in China’s boutiques and luxury shopping malls has than 5 customers entering the
plunged as shoppers avoid public places and social gatherings store per day
— Chinese consumers are self-quarantining – significant drop in social  Significant outlook adjustments
gatherings, group entertainment afflicting demand for non-staple goods — Tapestry Inc. estimated loss of
such as liquors, wines sales of $200 million to $250
— Consumer spending not likely to resume until disease perceived to be million in sales for the second
“under control” (e.g., fatality rate lower, case growth down, containment half of its fiscal year as a result
measures effective ex-Hubei) – if peak by March, start recovery in 2H of the coronavirus.
 Next two weeks will be critical – staggered restart in consumer demand — Capri Holdings reduced its sales
most likely, by province, mirroring economic restart (e.g., Beijing, Shanghai outlook for the quarter by
first, provinces without sustained transmission); early reports indicate slow- $100M; ~150 of Capri Holdings’
ramp – reports of only 10-30% of employees coming to work after re-opening 225 stores in China remain closed
McKinsey & Company 23

Industry deep dive: Tourism / hospitality
COVID-19 is dampening tourism/hospitality sector, with precipitous drop in APAC expected for 1H 2020
Overview
 SARS in 2003 caused 28% drop in travel demand
($9.4 million lost in international tourism)
— Hong Kong was most effected and faced 41%
reduction in tourism’s contribution to GDP
— China experienced 3.2% decrease on
hospitality’s impact to Chinese GDP (lost $3.5B
in domestic tourism)
— SARS’ impact on economy of scale was short-
term. Losses were succeeded by gains in the
following moth, quarter or year so the annual
margins were affected marginally
 The impact of COVID-19 will be worse due to
China’s bigger role in both outbound and inbound
travel
— China is the world’s largest market for
outbound travel, it grew to 173 million travelers
(2019) which is a 10x increase from 2002
— China’s inbound tourism also grew to 142
million tourists (2019) which is a 3.7x increase
from 2002
— 16% of international tourism spending is from
China ($277B) in 2018
— 51% of travel and tourism GDP in APAC is from
China in 2018. APAC currently accounts for
80% of China’s outbound travel
Source: Press reports; McKinsey Global Institute
Sector-specific considerations Examples
 Global tourism was already suffering before the
COVID-19 crisis and received further impact by the
travel bans
— APAC tourism was dropped 1.3% in booking for
the Chinese's Lunar New Year while comparing to
previous year. After the travel ban, tourism
booking dropped another 15%
— North America travel booking (from China) was
not looking positive before the travel bans and it
dropped to 22.5% after the travel bans
 Now, because of the coronavirus, certain areas are
completely shutdown
— Hotel booking has dropped 25% in Bangkok
— More than 73 airlines have cancelled flights to
China
 Based on SARS, tourism is unlikely to recover until
the peak of crisis is well over
— Took 4 – 5 months for tourism industry to rebound
from the impact of SARS
 Seasonality matters – sector expecting summer
season to begin circa April, but sector likely to
continue to face dampened demand over 1H 2020;
European hotels and other business stand to lose
hundreds of millions of euros if the travel restriction
carries into spring and summer
Chapter › Topic
 Impact to top international travel destination for
Chinese tourist:
— Hong Kong, No.1 (49 million Chinese travelers in
2019), dropped 23.6% in retail sales last Nov,
could plummet by 30% in the coming months
— Macau, No.2 (27.5 million Chinese travelers in
2019), reported at 75% decrease in mainland
tourists for the first four days of the Chinese
Lunar New Year
— Thailand, No.3 (10 million Chinese travelers in
2019), stands to lose $3.4B in tourism revenue
due to the virus outbreak
 Impact to hospitality companies
— 150 hotels, approximately 33,000 rooms are
closed in China as a result of the outbreak
— Occupancy fell 75% over 2 weeks in mainland
China in January (landed at 17% on Jan 26th)
— It is estimated that there will be a $10B impact to
the hotel industry
— Marriott, Hilton and Hyatt hotels’ stocks have
tumbled more than 6% in January and offered
free cancellation for their guests
— Hilton expects a $25 - $50 million hit on annual
adjusted EBITA if the outbreak lasts 3 – 6 months
McKinsey & Company 24