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Newsletter
March 2005 |
SourceGlobal® with presence
in US, China, & India, offers global
sourcing services to the Heavy-Equipment OEMs in North-America. |
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CONEXPO-CON/AG 2005
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SourceGlobal® will be at CONEXPO-CON/AG 2005, March 15-19 in Las Vegas. Stop by booth N-2700 which is located in the North Hall. Please email if you would like to set up a meeting. CONEXPO-CON/AG 2005 is
the world's largest show for the construction and construction
materials industries, showcasing the latest equipment services and
technologies.
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China
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Does Revaluation Matter?
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No
one questions that the Renminbi is undervalued. Estimates
range
from 20-50% but it's clear that China's exporters are enjoying some
advantage from their cheap currency. This has become quite
the
political hot topic but it isn't so clear that it is as big a problem
as it is made out to be. Many of the trade imbalance issues
are
structural issues rather than fiscal ones. China's
competitive advantage stems largely from its
enormous labor pool. Whether the Renminbi is fairly
valued or not, companies have and will continue to go to China for
inexpensive labor. To simply look at the trade deficit
numbers
ignores the value chain. Currently only 20% of the value of a
typical product comes from its assembly in China. Certainly a
revaluation is necessary and ultimately will be beneficial, but a look
at regions such as Southeast Asia gives a hint of what to expect.
While
China gathers much of the attention and the lion's share of foreign
direct investment, nearby countries are quietly doing well in spite of
China's rising economic dominance. Many manufacturers are sensibly unwilling to
depend solely on China and have spread out their investments to hedge
risk. Even though Southeast Asian currencies have been
strengthening which hurts exports, the stronger currency has helped
imports which in turn has helped increase investment in
factories. Furthermore, comparative advantage is alive and well
with local niches thriving. China sets to
global benchmark for pricing but that doesn't necessarily mean the "China price"
can't be met, just that companies will have to work hard to stay
ahead. A revaluation will help but even a 50% strengthening of the the Renminbi isn't going to change the fundamental economics of trade with China.
For additional detail:
The Myths of the Cheap Yuan
Asia's Tigers Hang Tough
How China Will Change Your Business
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RFID in China
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Radio
Frequency Identification (RFID) is promising to be the technology that
replaces, or more likely supplements, bar codes. While the cost
of tags is not low enough yet for sub-pallet size applications, it is
finding early adopters high volume or high margin businesses.
Most famously WalMart has been pushing its top suppliers to provide
RFID tags on pallet shipments to the retail giant, though there have
been delays due to cost issues. Pfizer is starting to use RFID on
Viagra to as a tool to cut down on counterfeiting. Best Buy,
Metro, Tesco, and the US Department of Defense are among the other
early adopters. For RFID to have full value however it has to be
pushed all the way up the supply chain, and in many cases that means to
China.
To
date, RFID adoption has been largely pushed by big multinational
firms. Currently RFID tags cost $0.25-30US, but they will have to
fall to around $0.02US before they will find widespread adoption.
Domestic Chinese firms haven't shown much interest mostly because the
technology is still too expensive for all but the biggest firms.
But the promise is there so the Chinese government has taken an
interest in RFID as a potential solution to help alleviate congestion
due to the ferociously increasing demands on its
infrastructure. A standard for RFID could help smooth
logistics as well as provide greater security. WalMart has been
working with EPC Global and the International Standards Organization
(ISO) to promote an open standard, though they have met with limited
success thus far. China is now considering a frequency standard
based on recommendations of ISO and is in the process of testing.
Despite these promising first steps it is going to be years before RFID
becomes widely implemented. There are still some technology
hurdles to overcome and it needs standards and economies of scale to
become economically viable. Current demand is only about 10
million RFID tags annually and it will have to grow to perhaps 5
billion to achieve the necessary economies of scale.
For additional detail:
Understanding RFID Adoption In China
China Considers Frequency Standard
Where's the ROI on RFID? |
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Quick
Facts
How many miles $20 Gas Buys In:
Germany: 127 miles
India: 150 miles
USA: 342 miles
China: 385 miles
Saudi Arabia: 771 miles
Venezuela: 4,624 miles
Chinese Pensions
% of Chinese With No Pension: 80%
Literacy Rates
Men: 95%
Women: 86%
Total: 91%
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India
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| Is India Missing the Boat on Manufacturing? |
India's
service sector has been an unabashed success and accounts for 51% of
GDP versus only 35% for its manufacturing sector. China is
the
clear leader in manufacturing with over 7 times the export revenue of
India. India's manufacturing sector is growing at a very
respectable 6.3% annually but still does not match China's 8%+ growth
rate. So has India missed out? Not necessarily but
prompt
action is needed to take advantage of the opportunities
ahead. India's manufacturing industry has a window
of opportunity over the next few years in sectors such as autos,
pharmaceuticals, and textiles but cannot delay too long if India is to
seriously carve out a manufacturing niche from China.
Infrastructure and tax policy top the list of obstacles but progress
has been made. 8.4% industrial growth between April and
December of 2004 with manufacturing leading the way at almost 9%.
There have been a variety of reforms in the last five
years. Taxation policies need further reform as
well to
permit companies to take advantage of opportunities instead of
"contributing" payola the tax man. Policies intended to
protect jobs mean India is still slow to allow companies to fail
rapidly so capital can be reallocated efficiently.
For additional detail:
Manufacturing: Road to Economic Growth
Future Factories
Manufacturing Sector Poised for Big Push
India Clears Rules for Foreign Investment In Real Estate Market
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| Foreign Direct Investment Welcome |
India
has at long last cleared the way for foreign direct investment in the
construction sector as well as for companies to own more than small
plots of land. According to Commerce Minister Kamal Nath, "The
government has decided to allow FDI up to 100 percent under the
automatic route in townships, housing, built-up infrastructure and
construction development projects to catalyze investment in a vital
infrastructural sector of the economy." Previously foreign
investors had to meet certain minimum requirements in order to keep out
presumed predatory foreigners. A minimum of $10 million with
a three year lock up was required previously. Projects also
had to either involve a large amount of land or housing or employ over
10,000 people. This made urban development
difficult. The opportunity in real estate is huge
in India, particularly in low cost housing with IRRs on projects
regularly topping 30%. Foreigners are still barred from
selling undeveloped real estate, ostensibly to prevent speculation.
For additional detail:
India Clear Rules for Foreign Investment in Real Estate Market
Doors Wide Open in India for Property FDI
India Relaxes Some Investment Rules |
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Quick
Facts
Literacy Rates
Men: 69%
Women: 46%
Total: 61%
Structure of GDP
Agriculture: 22%
Industry: 26%
Services: 52%
World Health Chart
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