The SARS effect: a chill for American businesses

Tricia Cleary is searching the world for someplace other than Asia to sell her high-tech stovetops. She has the inventory, which would have been sold in Hong Kong at the end of the month at a food-industry trade show. But now, the show has been postponed for two months until more is known about severe acute respiratory syndrome (SARS), which has been blamed for more than 160 deaths.

"Asia's my fastest-growing market. This will definitely hurt us," says Ms. Cleary, the director of marketing at Chicago-based CookTek.

Cleary is one of thousands of US businesspeople who have canceled travel to Asia. Major retailers such as Wal-Mart and Target are holding off on buying trips, which may eventually mean a scramble to get products from other parts of the world. Investment bankers are postponing trips that would have helped companies raise capital. The scare is even spreading to US Chinatowns, where some Americans are reluctant to go for won-ton soup and fried rice.

"This is clearly going to be debilitating for some sectors of the economy," says Mark Zandi of Economy.com.

Before the SARS virus hit, Mr. Zandi had been expecting US tourism to Asia to grow by 2 percent. Now, he expects it will drop 10 percent. A steep reduction in travel to Asia is certainly being seen by travel agency Snow Valley Connection in Park City, Utah. "People are canceling their trips - everyone is canceling," says Bonnie Barry, the owner.

It's still too early to tell if SARS will affect US gross domestic product numbers. At the moment, trade is continuing between the US and Asia, where many goods such as footwear, apparel, and toys are made. The toy industry, for example, has already ordered its toys for the December holiday season. And instead of traveling, many businesses are getting by with phone calls, video conferences, e-mails, and faxes.

"How big the implications are depends on how long it lasts," says David Wyss, chief economist at Standard & Poor's in New York.

On Wednesday, the World Health Organization said it had identified the SARS virus as one that had never been seen in humans before. Although laboratories are working hard to to find a way to control it, researchers say it could be some time before a vaccine is developed.

Economically, much is at stake. For the first 11 months of 2002, the US sold $20 billion worth of goods to China, which exported $121 billion back to the US. Some industries have become extremely reliant on China as a supplier. For example, the US footwear industry makes 75 percent of its products there.

This type of reliance leads Tom Duesterberg, president of the Manufacturers Alliance/MAPI, to wonder if SARS may lead some companies to rethink plans to move their manufacturing to China. "Companies tend to forget there are problems in China," he says. "It might raise to the forefront other questions about the cost of doing business that go beyond simple labor costs."

But so far, that's not happening, says Robert Kapp, president of the US-China Business Council, which helps companies plan business strategies in China. "It's too soon to say multibillion-dollar deals are seriously derailed," he says. Yet he adds, "For China and Hong Kong, there is no doubt that every canceled trip has spinoff effects."

That's the case with CookTek. Over the past two years, it has taken its magnetic heating technology to a trade show in Hong Kong. Sales more than tripled. In anticipation of continued success, the company had stocked up on inventory. "We had great momentum," says Cleary. "But that has all but come to a stop."

CookTek also imports accessories for its products from a contract manufacturer in China. Cleary says her firm is having trouble getting some of this product because the contractor can't find enough workers. The slower production means CookTec has had to pay for air shipment instead of sea shipment.

This is a particularly crucial time for the apparel industry. Normally, executives would be traveling to China to inspect this summer's garments. "Work flow is key: One thing missed can cause a delay in production, and in the apparel business, a one-day delay can make the difference between making a season or losing a season," says Mark Burstein of New Generation Computing, a Miami company that provides software so overseas production can be monitored online.

But on an unexpected positive note, the SARS scare shows how flexible factories have become. Mr. Burstein says he knows of some companies that have shifted production from China to India. "By using the Internet, they can have production up and running in two to three hours," he says.

Widespread publicity about the virus has even made an impact in US Chinatowns, where tourists seem to be staying away. To try to show the public that Chinatowns are safe, mayors and other officials are going there for lunches. And the communities themselves are trying to rally. Tony Liu of Toro Associates, a company that serves as a liaison between Asian and American businesses, heard a rumor that the owner of a restaurant in New York's Chinatown had died of SARS. So Mr. Liu and some friends went to the restaurant to support the owner.

"He shook my hand so hard," he recalls. "It was just rumors."

• Stacey Vanek Smith contributed to this report.