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Newsletter
April 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/AGG 2005
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Thank
you to all who attended CONEXPO-CON/AGG 2005 in Las Vegas.
Sourcing needs are constantly changing and a number of messages were
clear during the show:
- Most companies are familiar with global sourcing though not all have attempted it
- Companies that are not in commoditized businesses are less inclined to look at global sourcing
- There is suprisingly strong interest in sourcing from the US to Asia and South America for genuine and surplus hard-to-find parts
- Strong interest exists for oursourced engineering services from India and China
- Many more companies have sourced from China (Taiwan) than India or other low cost countries in Asia and Eastern Europe
Based on your feedback at the show upcoming issues of the SourceGlobal® newsletter will feature.
- Risks to supply chain from global sourcing
- Different models for product sourcing using offshore/outsource
- Global markets for service and replacement parts
- Off-the-shelf IT tools for strategic sourcing
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CONEXPO- CON/AGG 2005
Statistics
1.88 million ft2
1,968 exhibiting companies
IFPE with 111,670ft2
& 440 exhibitors.
Used more than 45 acres (18.5 hectares) or over 41 football fields.
21,220 international attendees comprising 17% of total attendance and representing over 130 countries.
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China
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Security Concerns Affecting the Supply Chain
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Since
9/11 there has been a steadily increasing emphasis on port
security. Only a small percentage of shipping containers are
ever
inspected which presents an enormous security concern. Not
surprisingly, over 50 transportation related bills
are presently working their way through the US Congress.
Effectively balancing these security needs without unduly delaying
shipping is always a problem. It is
estimated that each day a shipment is delayed can add up to 1% to the
cost of a shipment. There is a
significant risk that ill conceived measures will choke off trade,
either through added cost or excessive red-tape delays. Some countries such as China are likely to be affected
strongly by the increased security, despite the fact that concern about
terrorism originating from there are actually rather low.
The
extra port security measures might not be a problem if the cost was
evenly distributed but exporters in developing nations typically bear
the brunt of the added cost. The costs aren't simply for
added
port security either. Piracy continues to be a problem in
some
parts of the world, most notably in the Malacca Strait near Indonesia
that accounts for about a third of worldwide reports of
piracy.
Given that this region carries half the world's sea-borne oil and
nearly a third of world trade, security is obviously of paramount
importance, however the cost is borne mainly by Indonesia, Malaysia and
Singapore. Most experts recommend taking a diversified
portfolio approach to mitigating shipping security concerns.
China may
be the most attractive single country for manufacturing but relying
solely on China exposes an exporter to significant risk should there be
an incident of terrorism or geo-political instability.
For additional detail:
When National Security Chokes Global Trade
Supply Chain Security: Is Your Company Complacent or Engaged?
Maritime Terror Concerns Prompt New Initiative in SE Asia
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| Eastern Europe Versus China |
While
China gets much of the attention in any discussion involving
globalization, Eastern Europe has quietly become a strong outsourcing
alternative. While labor costs are higher than in China, Eastern
European countries have lower transport
costs to many European and Mediterranean markets. Eastern and
Central Europe also have perhaps the highest concentration of
engineering talent in any developing market. A study by Boston
Consulting Group argues that for a typical product the difference
in cost between China and Eastern Europe amounts to less than 3 percent
in many cases without taking into account transport costs.
Furthermore as the European Union grows, so too should Eastern Europe
as they are natural trading partners. So
why does China get most of the focus and investment? Growth is the
main reason. China's population implies the potential of a vast
domestic market in addition to low labor costs for exported goods for
the foreseeable future. While the collective economies of Eastern and
Central European countries currently have a GDP four times larger than
China, the growth potential is not the same. While China's
economy is the fastest growing in the world, the same cannot be said of
Eastern Europe. Labor costs in Eastern Europe are 4 to 10 time
cheaper than in Western
Europe and typically 2-3 times higher than in China or India permitting labor
cost arbitrage to occur.
For additional detail:
Eastern Europe: New Emerging Market
Outsourcing: The New Phase of EU Business
Where in the World? The Best Locations for Supply Chain Management Facilities |
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Quick
Facts
Population Comparisons
| Population |
China
India
USA |
1.270B
1.029B
0.282B
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42% of World Pop
15% of land area |
| Population Density |
China
India
USA |
130/km2
307/km2
28/km2 |
| World population density 40/km2 |
Rural vs Urban
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China
India
USA |
67%/33%
72%/28%
21%/79% |
| Life Expectancy |
China
India
USA |
71
64
77
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Sources:
US Census Bureau
USDA
Wharton Journal
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India
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| A New Era In Indian Patent Law Dawns |
For
years western pharmaceutical companies have complained about Indian
patent laws that prevented patents on any pharmaceutical product.
Under Indian law only a process used to make a product could be
patented. The result was a wide variety of perfectly legal (in
India) and low priced generic drugs from Indian manufacturers able to
free-ride the R&D efforts of western labs. A new bill which
has cleared the lower house in India's legislature will significantly
strengthen product patents in order to meet WTO guidelines.
While the bill will allow more challenges to patents and be more
restrictive in allowing patents on minor modifications to existing
products than western laws, not surprisingly multi-national firms have
largely applauded the bill.
However
the bill is not without potential consequences. Many of the drugs
produced in India were sold for use in poor areas such as Africa.
Critics, including the international aid organization Doctors Without
Borders, sharply criticized the new law claiming it will prevent
affordable care from being delivered to people who can afford it the
least. Worldwide as much as 15% of drugs sold are thought
to be counterfeit and in places like Africa the number is believed to
be closer to 50%. There is serious concern that counterfeiting
problems will only increase if cheap generic Indian drugs are taken off
the market.
For additional detail:
Indian Legislature Adopts New Patent Law
Adding Value to Pharma Supply Chain
The Global Threat of Counterfeit Drugs
New Patent Act |
| India Steel Expansion |
Demand
for steel has never been stronger and the Indian steel
industry is responding by investing US$27.5 billion to expand capacity
and there are
plans for up to an additional 65 million tons of new capacity by
2020.
India's Tata Steel alone plans to triple production to 15 million tons
by 2010. India has enormous iron ore reserves but presently
lacks the local
steel making capacity to make use of it all. India it has
become one of the lowest cost areas for production in
the world. Nippon, Baosteel and POSCO have all announced
intention to add capacity in Chhatisgarh
or Orissa. In response to these top Asian steel firms
entering the Indian market, top Indian steel companies are scrambling
to become more efficient and have started to share research and
technology.
The
cyclical nature of steel demand and the durable nature of steel making
facilities seems bound to lead to overcapacity. Steel and ore
prices are high presently but this is certainly not going to remain the
case forever. Demand is strong in the US, Japan and
especially China but this demand is not expected to remain high in the
medium to long term. If too much capacity comes on line in
the interim, there could be a strong shakeout among smaller
players. Nevertheless, India's low cost position and favorable location might work to its favor in an
overcapacity situation provided protectionist duties can be avoided.
For additional detail:
India Steel Ramps Up
India Making Big Investments in Steel
India Steels the Limelight
Steel Majors Agree to Joint R&D
The Economics of Steel Clusters |
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Economic Facts
| Real Growth Rate |
China
India
USA |
9.1%
8.3%
3.1% |
| GDP Per Capita |
China
India
USA |
$5,000
$2,900
$37,352 |
| Labor Force |
China
India
USA |
778 MM
472 MM
147 MM |
| Industrial Production Growth |
China
India
USA |
30.4%
6.5%
0.3% |
| % of GDP Spent on Healthcare |
China
India
USA |
2.7%
5.2%
14% |
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