How Does Covid-19 Impact Technological Modernization of Latin American CPGs?

This post prepared with information received from 951 respondents across Latin America to a reader survey asking about changes brought about by the COVID-19 crisis in the capital equipment investment plans of CPGs in the region.

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The COVID-19 pandemic exploded at a time when the business world was developing its plans for the year. Projects to update and improve production capacity, expansion of product lines and references, hiring of new personnel, and increases in customer bases, among other 2020 growth initiatives for companies, were barely taking off. Now the landscape has changed.

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Mundo PMMI asked our survey participants about COVID-19’s effects on the operations of CPGs--

-- what decisions are they making to readjust the plans they had before the crisis? Their answers point us in a direction marked by caution.

Covid challenges for Latin American CPGs: Exclusive Mundo PMMI Survey, read here.

Given the uncertainty generated by the crisis, 62% respondents said job interviews are on hold for this year’s planned hiring of new personnel to develop administrative, production, technical and sales functions. (See Graph 1)

Graph 1
A similar scenario can be seen in capital investment decisions. About half the survey participants (47%) answered their option is to keep concrete decisions on hold. (See Graph 2)

Reasoning behind the decisions

Looking at updating and modernization of production capacity through acquisition of new machinery and equipment, the predominant position focuses on caution and austerity. A significant number, though, will continue with their projects, with major or minor changes, while a sizable percentage (26%) has not decided on investments in this area. For other respondents (28%), investing now represents a solid route to a post-pandemic scenario. (See Graph 3) 

The cautious: A majority of respondents (45%) consider it is too early to decide with certainty on investments, given an absence of elements to foresee what may come after the COVID-19 pandemic is overcome, more so when many Latin American currencies have already been drastically devalued."The economic outlook is difficult and, given the uncertainty, it is better to wait and see what happens," says one entrepreneur surveyed, echoing numerous opinions in the same direction.

Graph 2

The availability of funds for investments in capital goods is also being reduced by factors such as devaluation and the consequent increase in the cost of many raw materials. Additionally, thinking about expanding production capacity could be risky in the face of uncertain conditions that Latin American markets may experience after the crisis. "We do not know if demand will remain stable or will be less than predicted," says a Mexican businessman participating in the survey. "In a way, we are at the start of this situation and we will have to wait two or three months to see the behavior of the market and its reaction to the measures government has taken," notes another of the directors consulted.

Graph 3

Those who won’t: For 26% surveyed companies, this is definitely not the best time to invest in capital goods and, consequently, this option has not been considered for the short term.

Among their reasons for not considering acquisitions of machinery and equipment at the moment are the contradiction of acquiring new equipment when there are difficulties in hiring new personnel; the preference of directing available resources to other purposes, such as debt payment and preserving jobs for their workers; or simply that they had already made recent investments prior to the crisis.

An uncertain supply chain and price hike scenario is another compelling reason for not investing: "If we cannot count on raw materials, it would be very risky to think about expanding the production plant," says one businessman consulted.

Those who will invest: A positive approach in the midst of the coronavirus pandemic is reflected in the responses of 28% of survey participants, who see, with major or minor changes, good opportunities for investing in equipment and machinery.

Latin American CPGs Work To Keep Supply Chain Active, read full story here.

Some companies already had investment projects underway, while others are seeing increases in demand for their products, leading them to consider it wise to increase their production capacity with new capital goods. "We want to update the resources we have at the moment and occupy them to the fullest," says one businessman in his response. This optimistic view is shared by other respondents, such as the one who hopefully points out, “In thirty days approximately we will have a clearer picture. The opportunities we foresee after the coronavirus pandemic are very encouraging.”

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