While the governments and economists around the world are still trying to estimate losses and measure the impact of the Covid-19 and the subsequent lockdowns, the ‘Too big to fail’ companies have turned this crisis into an opportunity to attract large investments, increasing market shares and have recorded exponential profit growth.
Crux of the Matter
Financial systems are arguably far more complex and though fundamental problems of systematic risks remain the same, at times of crisis like the 2008 recession which no one anticipated, conditions change unpredictably. The pandemic has already shaken up business and consumer behavior on a massive scale and we have started to see the drastic changes across industries.
The phrase ‘Too Big To Fail’ became widely popular after the 2008 financial crisis and is used to describe a company that has a presence in the global economy and its failure would be catastrophic or a company that stands tall no matter what the crisis. Governments provide support such firms in a crisis by facilitating a merger, injecting capital, or providing credit because they recognize the consequences of the failure on the broader economy. People tend to trust such bigger companies, with many investing their liquid funds in such companies in times of crisis.
The post-corona economy will be transforming each and every sector and also it may shrink a sector but make the share for a big player even bigger. The disaster is expected to knock out small players as midsize players are running on fumes, brick-and-mortar stores are struggling to get financing and startups are disappearing.
The Top Gainers
In the entire retail sector today, the small retailers are facing the highest risks whereas the big players like Walmart, Amazon, Cosco, that have an e-commerce presence have hired additional 500,000 people and grown exponentially, providing an opportunity to a selective few executives to dominate the market like never before.
According to the Institute for Policy Studies, from March 18 to April 29, around 30 million Americans have filed for unemployment whereas, on the contrary, the S&P 500 has jumped nearly 23% profiting the US corporations and billionaires whose wealth has reportedly increased by 9.3% following the lockdown.
As the pandemic has accelerated online purchases, Amazon has emerged as the largest gainer with its founder Jeff Bezos‘s wealth increased by more than $25 billion since January 1. Moreover, it has also hired additional 75,000 workers to meet growing demands.
Apart from Amazon, Tesla CEO Elon Musk‘s wealth has increased by $10 billion, Former Microsoft CEO Steve Ballmer‘s by $4 billion, and Zoom Founder Eric Yuans‘s by $3.5 billion. 78% of Americans are living paycheck-to-paycheck during Covid-19, and 20% have zero or negative net worth whereas since January 1, 8 US billionaires have gained $1 billion in additional wealth and all the billionaires in the US have recorded a total wealth increase of over $406 billion.
Some of the tech giants like Microsoft, Google, Facebook, Apple are also recording huge growth in their net worths with continued investments in ‘too big to fail’ companies. Even in India, Reliance Industries has raised Rs.1.04 lakh crores investments from global firms in less than 10 weeks and aims to acquire a 48% market share by 2025. Its Chairman Mukesh Ambani has also entered the Forbes World’s Top 10 Richest People list after claiming the 9th spot with a net worth of $64.6 billion.
Even in India the unemployment rate reached 23.48% in May and to tackle the situation, the Indian government has reached out to more than 1,000 companies in the US to offer incentives for manufacturers seeking to move out of China which will ensure jobs and positive growth of FDI which has recently crossed $490 billion.
Opportunity For Indian Pharmas
Pharmaceutical companies are inevitably playing a large role in the crisis and India’s existing advantages in pharmaceuticals can be leveraged by betting on the growth of the global healthcare industry. India accounts for about 10% of the world’s pharmaceutical production by volume and 1.5% by value and according to the Indian Brand Equity Foundation, pharmaceutical exports of India from 2012 to 2019 have grown from $10 billion to $19 billion.
India is the world’s largest supplier of generic drugs and controls around 18% of the global market and also is a leading producer of vaccines in the world catering to about 50% of global vaccine demands. Due to the pandemic, there are a number of small pharma companies in order to expand have partnered with big players, and are at risk of becoming ‘too big to fail’.
In a post-COVID economy, India’s existing advantage of large-scale pharmaceutical production will allow to significantly leverage its soft power by investing in the growth of the healthcare sectors of other nations by boosting pharma exports.
With the ‘too big to fail’ companies continuing to churn out profits and the coronavirus continuing its growth trajectory; sooner or later is expected that the small firms will be in a deep unrecoverable crisis and the power would be shifted in the hands of only a few. Saying so, not everything will go to the top firms and once the virus passes there will be social transformations that will alter the structure of the global business.
- Margin Call is a 2011 American drama thriller film written and directed by J. C. Chandor in his feature directorial debut. The story takes place over a 24-hour period at a large Wall Street investment bank during the initial stages of the financial crisis of 2007–08. The film explores capitalism, greed, and investment fraud.
- The Robin Hood effect is an economic occurrence where income is redistributed so that economic inequality is reduced. The effect is named after Robin Hood, said to have stolen from the rich to give to the poor.
- The Matthew Effect is a social phenomenon often linked to the idea that the rich get richer and the poor get poorer. The term was coined by sociologist Robert K. Merton in 1968 and takes its name from the Parable of the talents or minas in the biblical Gospel of Matthew.
- eMarketer – The Biggest Business Impacts of the Coronavirus Pandemic
- The Economist – The pandemic shock will make big, powerful firms even mightier
- The American Prospect – After the Crisis, Big Business Could Get Even Bigger
- The Conversation – Coronavirus: your guide to winners and losers in the business world
- PwC – Global pharma looks to India: Prospects for growth