The old saying used to be “If America sneezes, the world catches a cold”. Times are changing and now it seems that China has caught a cold, and the rest of the Asian economies may be coming down with something worse.
In 1997, Asia was hit by an economic crisis, sparked by, amongst other things, a series of currency devaluations. When the Thai Government took the decision to unpeg the Baht against the US Dollar, it had a knock-on effect across the rest of the region, with falling stock markets and reduced imports.
Back in the current day, similar issues with slow economic growth and currency valuations in the region have many investors worried that a new crisis may be on the horizon. While many economists and experts may disagree with this, there are parallels being drawn between the situation today, and the one nearly 20 years ago.
Asian economies have just experienced their worst collective quarter since the Global Financial Crisis. Not even the Chinese powerhouse is immune to the slump, with its main stock market posting its worst quarterly results since 2008 and growth slowing to 6.9 per cent.
Currency valuations are down too. The Malaysian Ringgit has fallen a massive 26 per cent this year; the Thai Baht has hit a five-year low; Singapore’s central bank is about to undertake its second easing of monetary policy of 2015; Japan is facing another recession.
With export markets weakening, less money available to spend on imports, and China, long since the key customer for many Asian countries, unable to help due to its own perilous situation, there are concerns that it’s only a matter of time before there is a knock-on effect around the world.
Last week alone saw five major global organisations report a sharp decline in sales, tied to poor sales in Asia, which have lead to falling profits and revisions of growth forecasts.
- A 4 per cent fall in the sales of Barbie Dolls has hit Mattel profits (down to $223.8m from $331.8m last year), as a strong US Dollar impacts overseas markets
- Shares in Hugo Boss dropped 10 per cent, with the organisation blaming the deteriorating Asian market; it went on to cut its growth forecast for sales and core profits to 3-5 per cent
- Shares in Burberry dropped 8 per cent on Thursday last week, with its investors focusing on a dip in Chinese sales as the primary cause
- Casino and hotel operator, Wynn Resorts, reported a 60 per cent drop in earnings in the three months to September. Its Macau operations, traditionally a major money earner, saw a 37.9 per cent decrease in net revenues for the same period
- Nestle, still recovering from the Maggi Noodles safety scare, cut its growth outlook to 4.5 per cent, citing slower than expected growth in China
As the situation in Asia develops, investors around the world are nervous about what might be coming next. Decreasing export revenues, in particular to the Chinese market, are set to have an impact on growing economies like Brazil and Turkey.
There are concerns in Europe too, where exports to Asia are big business, as slow European markets aren’t able to pick up the slack in sales. Even in the USA, where growth is much healthier, long-term instability may ultimately cause problems.
Winter of Discontent?
Where does this leave procurement and supply chain? As professionals, we need to be aware of the developing situation, both from the point of view of sales and exports, but also for risk exposure for organisations.
While some organisations may be able to take advantage of the situation by sourcing cheaper products and materials, we need also to be aware of the potential risks of making changes to suppliers and across supply chains.
Where the markets go from here remains to be seen. Investors and economists will both be hoping that the coming quarter brings more stability and wards off any further talk of a second crisis.
Do you work in Asia, or have part of your organisation in Asia? What are your thoughts on the current situation? Get in touch, or leave your comments below.
Meanwhile, Procurious has scoured the web for the top headlines in procurement and supply chain this week…
New Job Creation in UK Automotive Industry
- Up to 28,000 jobs could be created in the UK automotive industry supply chain over the next five years
- A report from the Society of Motor Manufacturers and Traders (SMMT) estimates British car production is set to reach a record two million vehicles annually by 2020
- This boost in output will require an additional 9,500 employees at vehicle manufacturers in the UK, along with a subsequent increase across UK-based supply chains
- The report comes in the wake of huge investment by car-makers and supply chain companies throughout the UK
Read more at The Birmingham Post
Uber App ‘Does Not Break UK Law’
- A ruling by the UK High Court has decreed that the Uber app does not break the law
- The court had been asked to decide whether the company’s smartphones were considered meters, which are outlawed for private hire vehicles
- The Licensed Taxi Drivers’ Association (LTDA), which represents many of the 25,000 licensed taxi drivers in London, asked the judge to rule it was a meter and ban its use
- The LTDA now plans to appeal
Read more on the BBC
Nespresso updates on ‘The Positive Cup’
- CEO of Nestlé Nespresso, Jean-Marc Duvoisin, gave an update on the progress of ‘The Positive Cup’, Nespresso‘s 2020 sustainability strategy
- Marking one-year since its launch, Duvoisin announced that significant progress had been made towards improving the lives of thousands of coffee farmers, as part of the company’s AAA Sustainable Quality™ Program
- Over the past two years Nespresso has been working with its partner TechnoServe to help re-build the coffee sector in South Sudan, resulting in the country’s first-ever coffee exports in 2013
- Nespresso aims to source 100 per cent of its coffee from its AAA Sustainable Quality™ Program by 2020
Read more at PR Newswire
Wal-Mart to add Supply Chain Capabilities
- The US retail giant will aim to add capabilities to its supply chain in order to improve efficiency in the coming year
- CFO Charles Holley, speaking at an investors’ day, stated an expectation of an earnings fall in the year to January 2017
- Wal-Mart plans to extend the capabilities of its distribution warehouses to allow for shipping of individual items, rather than servicing of stores alone
- It is expected that this will improve accuracy and efficiency, while at the same time reducing costs
Read more at Just Style