If you were having flashbacks to the early days of Covid-19 as the tariff war exploded these last couple weeks, there was good reason. Simon Freakley, executive chairman of AlixPartners consultancy, certainly had that sense of numbing d\u00e9j\u00e0 vu.<\/p>\n\n\n\n
The global scope, the deep uncertainty about the future, the sudden, history-making market swings and ultimately the unsettled feeling that we\u2019re in someplace uncharted have had Freakley\u2014and a lot of those he talks to\u2014experiencing not-so-subtle reminders of those dark days, he says.<\/p>\n\n\n\n
\u201cI do think that the early days of the pandemic were a dry run for this, they were a dry run for the conditions that we’re dealing with,\u201d he told me in a conversation Tuesday night, before Wednesday\u2019s jolting turn of the tariff drama. \u201cThe pandemic wasn’t avoidable. This could have been avoidable, but it’s the circumstance that we’re dealing with.\u201d<\/p>\n\n\n\n
So what\u2019s he advising the big-company CEOs he talks with to do right now? The basics, he says: Control what you can control, communicate communicate communicate and above all else, protect your balance sheet. Then watch for opportunities.<\/p>\n\n\n\n
\u201cWhat do the best leaderships teams do? They remain nimble,\u201d he says. \u201cThey ensure that they’re never a hostage of a strategy that a previous moment in time might have been appropriate, but now isn’t appropriate. They remain agile to pivot.\u201d What follows was edited for length and clarity.<\/p>\n\n\n\n
At the moment, what CEOs are saying is: we don’t know where this is going. We do know that it’s going to lead to pressure on margins. We do know it’s going to lead to pressure on prices, and therefore we need to take steps to mitigate to the extent possible the detrimental effect on our business.<\/p>\n\n\n\n
Pausing discretionary spend to the extent possible, converting fixed cost into variable cost to the extent possible, mitigating any spend of capital until we know where this is going. Maximizing our access to cash, either through cash reserves, through the disposal of non-core assets or through borrowing facilities so we have options. Because out of cash and out of credit is out of options. Also, potentially, if special opportunities arise in the market, if assets are being sold that we can capitalize on, we have the resources to do it.<\/p>\n\n\n\n
Exactly. In moments of uncertainty like this, control the controllable because you can only focus on your circle of control, which is mitigating costs, maximizing the preservation of cash and maximizing, therefore, your agility to pivot and maneuver as things become more clear.<\/p>\n\n\n\n
We have tariff war rooms or tariff command centers set up to understand how clients can maximize tariff arbitrage. You know, if one jurisdiction has lower tariffs than another, how can you reconfigure your supply chain to mitigate to the extent possible, the net tariff cost to you?<\/p>\n\n\n\n
We have people looking at how they can deconstruct their products so that they may be import products with only direct costs so far incorporated into them, so you don’t end up paying an enhanced tariff on indirect costs. Importing semi-manufactured goods rather than finished goods; how you reconfigure your own domestic manufacturing operations to maybe manufacture those components that are most expensive to import, and then import the less expensive products from the differentiated territories.<\/p>\n\n\n\n
For instance, in an environment where China controls 60 percent of the rare earth elements in the world, and probably 90 percent of manufacturing with rare earth elements, if China’s going to be a very high tariff country to import from, how can you mitigate that by taking the rare earth elements into different jurisdictions to have them then manufactured so that you don’t end up with a higher tariff.<\/p>\n\n\n\n
The one bit of good news in this is we\u2019re using AI-enabled engines to understand how to disaggregate all of this production, to reconfigure it in the lowest tariff configuration you can. These AI tools can digest thousands of contracts a day to understand where the points of differentiation and difference are in this environment, which would take weeks, sometimes months to do it manually. They are allowing decisions to be taken more quickly than they were before.<\/p>\n\n\n\n
One of the things you’ve heard me say before, and it’s as true today as it was in those early moments of Covid, is that the best CEOs are their own chief communication officers. They get right onto the front foot of communication.<\/p>\n\n\n\n