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Newsletter
        June 2005

SourceGlobal®
with presence in US, China, & India, offers global sourcing services to the Heavy-Equipment OEMs in North-America.
      Upcoming Events

SUMPURA and SourceGlobal will be presenting at AEM’s inaugural purchasing conference, titled “Making Purchasing Your Strongest Link” on June 13-15th in Kansas City along with companies Caterpillar, CNH, Deere, Dana, Honeywell, Timken.  Sanjeev Maddila, managing partner of SourceGlobal will be discussing “Sourcing from China and India” with other industry leaders. This seminar will provide case studies as well as best practices for purchasing or procurement functions on topics like global sourcing, managing commodity increases, organizing effective purchasing function, and measuring supplier performance. If you are serious about increasing effectiveness of your procurement strategy and execution, don’t miss this two-day event.

Please let us know if you will be attending this event and would like to arrange a meeting.


"It's very easy to get into China but we find it difficult to stay there and it is very difficult to get into India but very easy to stay there" - Japanese Executive


Please let us know if you will be attending either of these events and would like to arrange a meeting.

Financial Times Asia Insight Series

FT Asia's Emerging Giants

NPR "Think Global" Series

NPR 'Think Global' Series

AEM Logo
       China
China Flag
Corruption Versus Cost - Locations for Global Sourcing

Market Dumping in the US

 

U.S. and European Union plan to place quotas and tariffs of up to 50% in order to stop a surge in Chinese made textiles flooding their markets, which have grown by more than 50% from last year levels. Prior to Jan 1, 2005, global quotas restricted annual growth of Chinese textile imports to 7.5%. China has announced it would quintuple export tariffs on many of its other products, trying to persuade its trading partners not to restrict textile imports. Aside from market dumping charges, China is also under pressure to raise the government-set exchange rate of its currency, and stamp out rampant piracy of music, software and other goods.

WTO defines market flooding or dumping as selling a product abroad by a country at a price which is either lower than production cost or lower than the price in the market where the product was produced. The Uruguay agreement on anti-dumping provides for two measures to check dumping. It permits importing countries to restrict imports of a product for a temporary period by either increasing the tariffs or imposing quantitative restrictions (quotas).

Though often difficult to prove, accusations of dumping are not a new phenomenon. Back in the 1980s, Japan was accused of dumping their memory chips in the US market to kill its manufacturing base. US Steel industry had to consolidate to fight off dumping from foreign steel makers. India, Brazil and Vietnam have been accused of dumping cheap shrimps in the US markets. In Korea, Japanese companies were accused of exporting industrial robots at 60% to 70% less than their domestic prices.

In the table to the left, the X-axis is an evaluation of the perceived risk level from corruption for companies sourcing from that country.  The Y-axis is the typical expected savings from labor for products sourced from that country.  In both cases the United States is the benchmark country.  Countries that are good candidates for outsourced labor or services usually are those which carry little to no extra risk for some cost advantage, or those that carry significant cost advantage to compensate for significant additional risk.  Those locations on the matrix are highlighted in green.  Countries on the left carry significantly more risk and as such should be evaluated very carefully prior to any investment.

For additional detail:
Anti Dumping Summary
Dumping Cases on China Imports Rise Since WTO Accession
Imported Shrimp Dumped in US, Commerce Says
South Korea Resumes Anti-Dumping Probe of Japanese Robot Firms
Chinese Enterprises Sued by US for Steel Dumping
Read a white paper
Global Sourcing

Wal*Mart Success In China - Case Study

 

For some time, Wal*Mart has been procuring high volumes of merchandise from China that it exports to the rest of the world through its Global Procurement Center located in Shenzhen. Their direct and indirect procurement add up $18 B in 2004, about 3.5% of China’s total exports making Wal*Mart China`s eighth largest trading partner, this compared to about $2 Billion from India. Today Wal*Mart uses over 3000 Chinese factories to produce its goods – almost as many factories as it has stores in the US (3,600). 70% of what Americans buy at U.S. Wal*Marts now comes from China.  Between 1985 and 2002, aggregate exports from foreign-owned companies operating in China rose from 2% to 50% of total Chinese exports.

Wal*Mart was the third foreign retailer to enter China, following Carrefour (France) and Tesco (UK), 2nd and 3rd largest retailers in the world respectively.  Wal*Mart currently operates 46 stores and there are plans to build 15 more, indicating Wal*Mart expects that its Chinese operations will grow significantly. General merchandise and the food products sold at Chinese Wal*Marts are of excellent quality and attractively priced despite intense local competition.  Customers are treated with respect, unlike in the open-air markets for which China is famous.

For additional detail:
Is Wal*Mart Good For America? The China Connection
Wal*Mart Suppliers Shift Base From China to India
Wal*Mart India Hopes Rise
Read a case study:
How Sumpura helped rapidly qualify suppliers
How Sumpura helped improve a supply chain

Quick Facts

Top Trading Partners

China

USA
Japan
S.Korea
Germany
Singapore

USA

Canada
Mexico
China
Japan
Germany

India

US
UAE
UK
China
Germany

Bi-Lateral Trade

2000

US-Jap
US-Chn
US-Ind
Chn-Ind

$211B
$116B
$14B
$3B

2002

US-Jap
US-Chn
US-Ind
Chn-Ind

$173B
$147B
$16B
$4B

2004

US-Jap
US-Chn
US-Ind
Chn-Ind

$184B
$232B
$22B
$14B

Source: The World Economy

 

       India
India Flag

Global Trade is Reviving Roles For Asia's Giants



Back in 1820, China had the world's largest economy — accounting for nearly 29% of global GDP — while India accounted for about 16%. In contrast, the United States accounted for only 1.8% of global GDP. Today, the US accounts for 22% of the global GDP - while China and India together account for only 17%. 
Share of World GDP
(% of Global GDP at Purchasing Power Parity)

Source: A. Madison 'The World Economy: Historical Statistics’ OECD 2003
To give some perspective, U.S. health care spending reached $1.66 trillion in 2003. By comparison, China's and India's entire GDP stands at $1.4 trillion and $598 billion, respectively, however this is expected to change.

According to many projections, by 2025 China’s share of is expected to rise to 24% and India’s at 11%, while US will remain at around 20%. The biggest loser seems likely to be Western Europe - Germany, France, Italy and UK, due to aging populations and a shortage of productive workers.  According to Morgan Stanley's Chief Economist Stephen Roach, "The $40 trillion world economy is dangerously out of balance, America is guilty of excess consumption - whereas the rest of the world suffers from under-consumption."

For additional detail:
Foreign Trade Statistics
And India-US Free Trade Agreement: Free Trade for America?
The Changing Landscape of Regional Trade Agreements (pdf)

GE's Long View Pay's Off In India - Case Study

 

When GE entered India in 1993, it saw, like other multinationals did at the time, a huge market for the taking. Soon, however, they realized that the Indian power sector was mined with regulatory and political snafus, that it wasn't easy for it to grow the finance business, and it wasn't going to reach $2 billion revenue by 2000.

Around the same time in the US, GE's insurance business was facing a manpower problem, they needed people to handle its call centers, but the low unemployment in the US made it tough. GE India through the late '90s worked on Six Sigma initiatives aimed at improving process and product quality. Between 2000 and 2004, outsourcing was GE India's refrain. Design, product development, software and engineering services; everything was being outsourced to India, and the company thrived even as everyone waited for the Indian market to turn the corner.

Today, GE India has 22,000 people and does $800 million in India (compared to $5.2B in China) which it expects to grow to $5 billion by 2010. This does not include the GE’s offshore services business, GECIS, which become India's best-known BPO firm and the main activity for which GE is known in India. Recently, they sold 60% of their stake in GECIS to other investors for about $500 million, which at the same time allowed GECIS to grow by offering BPO services to non-GE clients.  Revenues are expected to reach $1 billion by 2008.

For additional detail:
GE to Make India a Manufacturing Hub
GECIS, GE's Call Center Unit, Plans Purchases
In India's Outsourcing Boom, GE Played A Starring Role

Economic Facts

World GDP Growth

1820
1870
1913
1950
1973
2001
2015*
2025*

$0.8T
$1T
$2.9T
$5.5T
$16T
$33.7T
$53T
$70T

China Exchange Rate vs US

1973
1989
1997
2001
2003
2004
2005

1.99
3.77
8.28
8.28
8.28
8.28
8.28

India Exchange Rate vs US

1973
1989
1997
2001
2003
2004
2005

7.74
16.23
36.31
47.33
46.6
45.4
43.57

Source: The World Economy

All data 2003

Source: CIA World Factrbook
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