SARS Has Negative, Positive Impact on Small Business

As with the war in Iraq, entrepreneurs are feeling the impact of a deadly disease but also finding ways to benefit.

By Devlin Smith

Opinions expressed by Entrepreneur contributors are their own.

Since the first cases of Severe Acute Respiratory Syndrome(SARS) appeared in China in November, the world has beencontemplating what exactly the impact will be of this outbreak,with nearly 4,300 cases and 250 deaths worldwide to date. Thebusiness community is also taking a hit, with travel limited, shopslosing customers and manufacturing plants missing workers.

As international health agencies continue to update travelalerts for regions of Asia and North America, vacations are beingcanceled, hurting a variety of travel-related industries. Businesstravelers are also putting their travel plans on hold, costing manycompanies time with partners, workers and clients.

"People are flying, but on a 'must travel'basis," says Matt Bennett, editor and publisher of FirstClassFlyer.com, a site providing tips to businessand first class travelers. "It's important to remember,though, that while traffic on some routes across the Pacific isdown as much as 25 percent, that means three out of four people arestill taking their trips to Asia."

Those who aren't traveling are relying on videoconferencingor just waiting the situation out. "Inability to travel freelyin Asia is causing technology suppliers to rethink how they sell,service and support," says Peter Kastner, chief researcherwith AberdeenGroup, a Boston-based IT marketing analysis and positioningservices firm.

In addition to travel disruptions, tech companies also have todeal with manufacturing delays: "The People's Republic ofChina is a $100 billion producer of electronics components,assemblies and finished goods," Kastner explains. "Ifbusiness is disrupted, this will have a severe negative impact onglobal supply." To combat this, some companies are looking tosuppliers outside Asia.

What's more, the IPO market is also bracing itself for theill effects of SARS. In putting together its IPO prospectusrecently, Santa Clara, California, networking products companyNetgear Inc. listed SARS as a "risk factor," stating theillness "may have a negative impact on our operations,"according to a Dow Jones report. This listing, though, is morea precaution than a declaration.

"Companies must address risk factors that could materiallyimpact the value of an investment in the company'sequity," says Bryan Armstrong, executive vice president ofAshtonPartners, a Chicago-based investor relations and corporatecommunications firm. "Given the nebulous meaning ofmateriality, it is conceivable that companies are including SARS asa potential risk factor given its impact to investor and consumerconfidence."

Whether SARS will have a negative impact on IPOs is stilldebatable. "I put SARS as a risk factor in the category ofstupid risk factors to list in the prospectus, just like the Y2Kproblem was a stupid risk factor in 1999 prospectuses," saysJay R. Ritter, Cordell professor of finance at the University of Florida inGainesville. "Of course it is a potential problem that couldhit some businesses, such as tourism, very severely if it gets outof hand."

It's Not AllBad
Not all businesses are feeling negative effects from SARS, however.Jeremy Shepherd, owner of Pearl Paradise.com, an online pearl reseller,is actually seeing increased opportunities since the outbreak."We typically purchase from many small pearl farms [in Asia]that produce a limited number of the quality pearls we need, [and]what we have faced in the past are multiple buyers vying for thebest pearls," Shepherd says. "Over the past months, thebuyers have ceased visiting these farms, [and] for the first timethe farms are fighting for the few buyers' business and pricesare dropping rapidly."

Shepherd is eager to take advantage of this situation. "Iam personally traveling to Asia at the end of [April], and will, ofcourse, be taking precautions while there," he says."I've read the CDC's reports regarding SARS; I do feelcomfortable with my decision and am not very worried."

Missy Cohen-Fyffe has felt the indirect benefits of SARS for herPelham, New Hampshire-based company, Babe Ease LLC, manufacturer ofClean Shopper, a cotton quilted glove that fits over the seat,handle and metal area of shopping carts, protecting babies andtoddlers from bacteria. "SARS has had a positive impact on ourbusiness simply because it is a virus that appears to betransmitted through human contact," says Cohen-Fyffe."Many of our customers are extremely aware of disease-causingbacteria and how those germs are transmitted to their babies; ifthere is a way to prevent the spread of germs, our customers wantto know."

As awareness of SARS has increased, so has traffic toCohen-Fyffe's site. "We first noticed the change inmid-March when traffic to our site increased dramatically," shesays. "Typically we receive 5,000 hits per month--for March,the number was 6,700. Several customers actually asked if the CleanShopper could protect against SARS. While we explained that theClean Shopper is really designed to protect against germsassociated with shopping carts, we still made thosesales."

Though Cohen-Fyffe understands the long-term impact of SARS onher business (more hits to her site means more sales means morepotential customers will see her product), for most businesses thequestion of what's next still hangs in the air. "Until weget a better handle on this virus that is still not verywell-understood, the long-term impact is too difficult todetermine," FirstClassFlyer.com's Bennett says.

For more information about SARS, including travel advisories,visit the SARS pages on the Web sites for the Centers for DiseaseControl and Prevention and the World HealthOrganization.

Eternal Optimists?
With every crisis, there'sa silver lining. Entrepreneurs are also making lemonade out of thewar in Iraq, either by supporting the troops, or bybidding on subcontracts for the reconstruction of Iraq.

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