I lead a company focused on commercial real estate development. When Covid-19 turned our industry on its head, we pivoted to providing high quality personal protective (“PPE”) equipment, first in our home state of Arkansas and then to businesses and individuals in over 30 states. Beyond the massive shift in the business model, this experience challenged my long-held view that free trade, globalism and technology are the way forward for businesses and the US economy.
Our real estate business focuses on urban infill and the creation of a mixed-use riverfront community. When the pandemic shut down the US last March, a significant economic downturn seemed probable. Having lived through the real estate depression of 2008, we sought other business opportunities. The need for high-quality PPE exploded and we expanded to supply CDC-compliant cloth masks.
From our first order in April to the start of the school year in September, our company served over 1000 clients in 34 states. In addition, when Americans nationwide were losing jobs, 70 people in my company were able to keep their employment and new jobs were even created. We deliberately partnered with local manufacturers and other suppliers whenever possible to create and maintain jobs at home while ensuring quality, reliable supply chain not subject to the international trade uncertainties affecting overseas sourcing.
A range of lessons emerged from the experience.
First, the US urgently needs to increase domestic production of critical goods.
Local providers are still crucial for business success. Networks and reputation still have value. Despite their promise, new technologies are not yet the most reliable avenues for meeting consumer’s needs. And most importantly, more decisive federal and state leadership is needed to guide local decision makers and provide a unified, informed response to a crisis.
Focusing on manufacturing expertise and market demand enabled the Chinese economy to dramatically escalate its PPE production. According to Ma Zhaoxu, Vice-Minister for Foreign Affairs, Chinese manufacturers produced 10 billion masks in 2019 and then in just the three months of March through May of 2020 were able to export 70 billion masks. Chinese manufacturers in diverse sectors, from construction to beauty supply, pivoted rapidly to manufacture PPE – thus meeting a critical national need while ensuring their companies’ survival.
On a micro level, my company’s adaptability enabled our team to create a new business and move rapidly enough to meet the needs of hundreds of customers spread across the country, many of the health care and essential service providers with deadline-critical, high-volume orders.
Second, it is critical to have fallbacks for your suppliers.
A key to our success was identifying other local companies willing to change. Record global demand for PPE coupled with rising trade tensions made importing from China challenging. Our initial manufacturer makes clothing for an internationally known sports brand and has U.S. and global operations. Demand cratered at its Port of Little Rock location and the company sent its local workforce home. Management was eager to diversify and we worked with them to develop cloth face masks to meet CDC guidelines and consumer preferences. As demand for masks escalated, the company recalled their workforce and recovered a revenue stream which kept it going until its main customer returned.
In addition, we gained the rights to produce licensed products for the Arkansas Razorbacks and a range of universities, which resulted in large orders for branded masks. Of the four branding companies contacted, only one was willing to adapt. Within a week of our first order, the owners called all employees back to work and within two months was operating two shifts with 10 additional employees. The three companies that did not adjust are still operating at half capacity, at best. Pivoting quickly paid off for both of these suppliers, enabling people to stay on the payroll and for their companies to survive and grow.
As demand outstripped the ability of the local manufacturer to provide masks, we needed other suppliers. First, we looked for US suppliers – but without success as few US textile manufacturers still exist. We then turned to our network of existing Chinese suppliers from the construction industry who were able to meet our high standards. The manufacturers themselves have proven to be good partners. However, importing was made difficult by both the Chinese and US government’s sudden rule changes and tariffs governing trade between the two countries. Further exacerbating the problem was very limited air transport and long lead times for cargo ship delivery.
In addition to supply-chain challenges, we had to distinguish ourselves as a reliable provider of high-quality PPE in a marketplace that sprung up overnight and attracted shoddy products and fraudulent sellers. Due to the many bad actors, major social media channels prohibited advertising for PPE of any kind. Many companies managed to circumvent these rules, but as a long-term business, we did not want to risk our ability to use these platforms in the future. We resorted to the traditional means of newspapers, email newsletters, and the old-fashioned mailings with samples. Thankfully, our long-standing relationships in the community reassured people of our legitimacy and capabilities.
Third, new financial technologies may not be your friend.
Since most procurement managers work from home, we needed a system for people to order and pay online. We established accounts with three widely used online payment applications, which then suspended our accounts as suspicious due to our products and rapid growth. In addition, our funds were held in case of consumer complaints. Again, traditional methods and local contacts solved our issue. Our long-term commercial banker quickly set up an online payment system for us, vouching for our legitimacy to the credit card processor.
The decisions of these tech companies appeared arbitrary at times. For example, the promotion of a government PSA encouraging the use of masks on our site was rejected and we were threatened with shutdown; meanwhile, our site continues to be inundated with comments containing misinformation or inflammatory political statements about masks. Appeals of decisions about ads or access to a financial app only results in the decision being evaluated by another algorithm. Despite multiple efforts, we have yet to talk to an actual customer service person. Tech companies struggle to provide a reliable service to legitimate customers. Without improvements, businesses may find themselves out in the cold without access to critical, almost monopolistic, avenues to reach their customers and transact business.
Fourth, effective government is essential.
Many of our biggest clients were school districts and universities. The school administrators that we work with are committed to the safety of their students and staff. However, the lack of leadership at the federal level and clear guidance made it difficult for them to know the right thing to do. Local school districts are expected to distill the latest science and make decisions on how to best allocate the limited funds provided for the Covid-19 response. School districts grappled with questions about whether to allocate funds to provide computers and broadband to students for online learning or when and how to return to in-person learning. When schools were essentially mandated by the Trump Administration to hold in-person schooling or lose funding, local school districts were still expected to wade through details and make decisions on how to implement the directive on their own.
Fifth, the embrace of globalism, free trade and high tech needs to be re-thought.
Our company was able to succeed by turning to local partners first and relying on longstanding relationships. As humanity faces the alarming consequences of climate change, more deadly new viruses and other unknown challenges, will nations be able to better cooperate to address such problems than they did during this pandemic? My experience makes me wonder if it is businesses, working locally to combat marketplace and supply chain uncertainties that will prove the more effective lever.
Having witnessed the desperation to obtain life-saving PPE by our clients who are medical providers and having personally experienced the difficulty of getting PPE from China due to tense US-China relations, I do not believe a pure free trade position with regard to critical goods is in the US best interests. While combating the current pandemic, the Biden Administration should also be planning for the next crisis and ensuring that the US has the domestic capacity to weather the storm.
To strengthen the US economy’s ability to adapt, tech companies should develop a more comprehensive approach to serve the best interests of both businesses and consumers. Key tech companies hampered consumers from finding trustworthy suppliers through the simplistic approach of banning all PPE providers, initially leaving bad actors who thwarted the rules as often the only online option. To serve businesses and their consumers, these companies need to ensure fair access especially given their outsized power in the marketplace.
Finally, at the time of crises, leadership is what truly matters.
While local control has been the mantra by many over the past few decades, even the most well-meaning local elected officials and administrators cannot unilaterally respond to a health crisis. School district by school district, city by city, state by state, we have seen the disparate methods of fighting the pandemic and the unfortunate results. A unified national approach has stemmed the number of Covid cases in countries like New Zealand, Australia, and South Korea.
The fractured approach taken in the US risks health decisions becoming politicized by local elected officials wanting to please constituencies that favor individual “freedoms” over communal responsibilities. These local decisions impact the entire country as people travel freely, potentially spreading the virus, and as the financial cost of the pandemic falls partly on our shared federal coffers.
Ultimately, the real estate downturn that so worried us did not materialize, and the rapid response of our company made us stronger. The lessons of Darwin come to mind, for our ability to adapt helped us not only survive but perhaps also played a small part in helping others survive as well.
