SARS forces rethinking of global business decisions

By Evelyn Iritani
Los Angeles Times

James Chow made sure he was downwind and several feet away from his boss, Ed Meadows. They were both shivering; it was a cold spring day in Southern California. But they couldn't go indoors, because Chow might be a carrier. He didn't want to be the one to infect the president of CenDyne Inc.

CenDyne CEO Mo Vahdati, left, and President Ed Meadows are working to limit their company's exposure to severe acute respiratory syndrome as they try to meet manufacturing deadlines. Both became violently ill after traveling to China in January and February, but doctors couldn't determine the cause of their illness. Los Angeles Times

After Chow's departure, Meadows called the Westin Hotel in nearby Costa Mesa, where three Taiwanese engineers were due in that evening. He arranged to have them stay at the hotel for five days, a sort of mini-quarantine. If they didn't show any signs of illness, they could come to the company. Until then, they had to meet their U.S. colleagues outdoors or talk by phone.

It sounds extreme, but in the new post-SARS world, global companies such as CenDyne, one of the world's largest producers of CD burners, aren't taking any chances. With the death toll mounting by the day in places as far apart as Hanoi, Hong Kong and Toronto, executives are willing to try almost anything to keep their companies on track without endangering themselves or their employees.

"This could cripple our business," said an exhausted Mo Vahdati, CenDyne's chief executive, who has been managing a complex Asian manufacturing network from the company's Santa Ana headquarters.

Add the threat of SARS to a fragile global economic picture and the world feels like a very perilous place to do business. CenDyne's struggles are shared by thousands of companies whose dependence on Asian trade and travel leave them vulnerable to these emerging threats, whether from a bomb hidden in a shipping container or a virus carried by an unsuspecting visitor.

Much like the attacks of Sept. 11 brought home to Americans the realization that they were no longer safe from terrorists within their own country, the spread of SARS has reminded nervous executives that their interconnected world can be a pathway to pain as well as prosperity.

"I think the expectation that (globalization) would be a smooth, direct process no longer holds true," said Daniel Yergin, chairman of Cambridge Energy Research Associates and producer of a television series on globalization that will air on PBS next month. "There's a sense of risk that wasn't there a few years ago."

Every day that SARS continues its unpredictable march, more companies are forced to make decisions that will affect buying trips, factory production schedules and the availability of goods on store shelves at Christmas. As those individual decisions ripple around the world, their combined effects pose an additional threat to economies already slowed by the war in Iraq and the global downturn.

SARS has not come close to epidemic levels with just a 4 percent death rate. Influenza-related complications, by comparison, kill an average 36,000 Americans each year. But even though scientists have identified the genetic code of the coronavirus believed to have caused SARS, they still don't know exactly where the disease originated, how it is transmitted and how to cure it.

Last weekend, the World Health Organization issued a warning that SARS could become the "first severe new disease of the 21st century with global epidemic potential."

The biggest question mark is China, which had weathered the recent global slump by boosting exports and government spending. Earlier this week, Chinese President Hu Jintao toured the southern China province that is the epicenter of the disease, saying he was "very worried" about the threat posed by SARS.

U.S. companies are watching anxiously for signs that the virus has migrated to the factories in China that are leading suppliers of apparel, toys, footwear and light electronics. The Pearl River Delta has been a fertile breeding ground for disease because of the crowded conditions, the proximity of farms and cities and a huge migrant work force. It was in the city of Foshan that the first known case of SARS was reported in November.

"If it moves to manufacturing all at once, that's what everybody is afraid of," said Maureen Lewis, an economist with the World Bank in Washington who has studied the economic effects of epidemics.

CenDyne, one of the world's leading suppliers of optical storage and PC peripheral products, was launched in 1999 by Meadows and the Vahdati brothers, Mo and Dean. As the world's electronic manufacturers moved to southern China, CenDyne followed to take advantage of low-cost labor and cheap raw materials and components. Last year, the Test-Rite Group, a Taiwan-based trading company, purchased a 42 percent stake in the company.

In January and February, Chow, Meadows, Mo Vahdati and a Test-Rite executive became violently ill after trips to China. Their symptoms were similar to SARS: high fever, chills and a cough. Their doctors could not find the cause of their illness, but all recovered within two to five weeks.

"I knew then that I would not go back," said Meadows, who still wonders whether he had a mild case of SARS. "I was so sick and miserable."

But Vahdati, the company's hard-driving chief executive, refused to quit traveling and went on a round of factory visits in the Foshan area in mid-March.

By the time Vahdati returned from that trip, the Centers for Disease Control and Prevention had issued an advisory against traveling to the region.

Suddenly, getting on an airplane began to feel more like taking a turn at the roulette wheel.

"It's not just your life," said Meadows, a veteran traveler. "It's all the people around you. It's your wife, your daughter, the people who you like at work. It's the people you meet at the Starbucks."

CenDyne executives insist that SARS has not shaken their confidence in China as a global manufacturing base. But the company isn't taking any chances. As a security measure, CenDyne is looking into alternative manufacturing facilities in Thailand or Malaysia for its new product line.