Tag Archives: Chinese economic strength

Should Procurement Pros Be Concerned About Global Trade?

Renowned economist and Big Ideas Speaker Dr Linda Yueh explains why CPOs needn’t panic about the President Trump administration but there are causes of concern. 

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Donald Trump made good on a campaign promise on the first day of his presidency by signing an executive order indicating the United States won’t ratify the Trans-Pacific Partnership (TPP) trade deal.

Though expected, the move caused a media storm and a flurry of responses from politicians and businesses all around the globe. But what does this mean for supply managers?

Many CPOs are understandably nervous about the Trump administration’s policies with regards to global trade. The resurgence of protectionism in the U.S., coupled with the continuing fallout and trade effects of Brexit, has left many procurement professionals wondering which region of the world they should plan to source from in the future.

The TPP was a massive free-trade agreement advocated by the Obama administration, aimed at deepening economic ties between the U.S. and 11 other Pacific Rim nations, cutting taxes, and fostering trade to boost economic growth in the process. Trump argued on the campaign trail that the agreement would be harmful to the U.S. manufacturing sector. As he signed the withdrawal order, he called it “a great thing for the American worker”.

Economist, broadcaster, author and Big Ideas Summit guest speaker Dr. Linda Yueh’s message to CPOs is one of caution but it’s not time to panic.

Don’t panic

According to Linda, there are three reasons not to panic about what Trump’s protectionist tendencies will mean for procurement, trade, and global supply chains.

  • We need to keep in mind that trade takes place under WTO rules. China is the U.S.’s biggest trading partner, despite no free trade agreement being in place. Of course, if Trump were to pull out of the WTO, then that would be a game changer. But, globalisation, especially e-commerce and the Internet linking markets and people, will mean that trade is likely to continue across borders as it’s hard to see a significant roll-back Costs of trade, of course, are another issue to be focused on.
  • Luckily, the Trump administration hasn’t honed in on e-commerce, which is good news for procurement and supply chains. Currently, one in ten transactions are already undertaken via e-commerce, and this figure will continue to grow.
  • Trump may have moved quickly to sign the TPP withdrawal order on his first day in office, but that wasn’t a formal agreement. Extricating the United States from NAFTA for instance will require renegotiation time and then a period of notice before that free trade agreement would end. Even then, most trade agreements include implementation periods, so a “cliff edge” is unlikely which gives businesses time to plan. Therefore, there’s no need to panic or overhaul your supply chain immediately. But, of course, forward planning and following economic policies would be wise. Also, take Brexit as an example – if Britain succeeds in triggering Article 50 in March 2017, then the UK is scheduled to leave the EU by the end of March 2019 – almost three full years after the people’s vote. And even there, the Prime Minister has indicated that there may be an implementation period to allow more time for businesses to adjust to leaving the Single Market.

Things to watch

So, Linda warns that supply managers should keep an eye on certain factors as global trade adjusts to these seismic political shifts.

1) U.S. border taxes – recently, Trump threatened BMW with a 35 per cent border tax on foreign-built cars imported to the U.S. market. This isn’t an isolated incident and American companies are under even more pressure to produce in the U.S.. Congress is also considering a similar tax, so that is worth bearing in mind as that would have the force of legislation.

2) U.K. Tariffs – one of the consequences of a “hard” Brexit where the UK leaves the EU without any preferential trade deal, which would include no agreement on the Single Market, Customs Union, is the re-emergence of customs for EU trade. Right now, significant customs procedures only apply to non-EU shipments. But, with around half of UK exports going to the EU, taking leave of Britain’s membership in the EU with no deal would means the end of free movement of goods. More customs declarations and duties would raise costs, slow down supply chains and certainly add time at border checks. A potential ‘hard border’ would be a particular issue for Ireland.

3) Resourcing Brexit – the UK Government also needs to think about the resourcing challenges involved in ramping up staff as well as IT systems to cope with the doubling of customs checks on the UK border.

4) NAFTA – As mentioned earlier, Trump has also flagged that the North American Free Trade Agreement (between Canada, Mexico and the U.S.) is up for renegotiation. If you’re a U.S. company, you need to start making plans now about how these changes will affect you. The same applies to any other of America’s free trade deals with 20 countries that Trump would have the authority to re-examine.

What about China?

Globalisation has helped China become a manufacturing powerhouse, but with numerous closed markets.

However, there are very good reasons to continue to do business with China. Wages may be rising but that helps businesses to think about China as a market as well as one production locale in a supply chain. Plus, with growing protectionism in America, China’s President has signalled that China may take more of a lead in globalisation. There’s a lot to watch for.

In short, Linda’s advice to CPOs around the world is keep calm, but keep an eye on the details as the globalisation landscape is shifting significantly. Global trade won’t end tomorrow but it will likely look rather different in the coming years.

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China’s ‘Global Giants’ Defy Worldwide Economic Slowdown

‘Global Giants’ in China are bucking the global growth trend. Against a backdrop of economic slowdown, these companies are striding forwards.

china global giants

China’s emerging global businesses are bucking the trend of domestic and international economic slowdown. According to a new report from global accountancy body ACCA and Lancaster University, growth rates are currently sitting between 12 and 64 per cent.

The report, China’s next 100 global giants, reveals the top 100 fastest growing businesses in China for 2016, tipping them as most likely to become ‘global giants’ in the next three to five years.

Huapont Life Sciences Co, which manufactures pharmaceutical, pesticide and active pharmaceutical ingredients, took out the top spot in 2016. This is an improvement from its second place ranking in the inaugural 2014 Global Giants report. It is followed by Hongfa Technology Co., and Hangzhou Hikvision Digital Technology Co.

“It is impressive to see that businesses in China are maintaining such high growth rates. Against a national GDP growth of 6 per cent, many of these countries are doubling this, some even multiplying it by 10,” said Faye Chua, head of business insights at ACCA.

“Almost half (46) of this year’s global giants also appeared in 2014. This demonstrates impressive growth maintained over a prolonged period. The number of new entrants, however, also indicates the dynamism of competition and business emergence here in China.”

Factors for Growth

The report indicates that there are common features between the top 100 businesses, with one of the most prolific being a highly effective business model.

“The successful fast-growing businesses in China are creating a ‘home base’ for globalisation. They are building market share and power domestically before, then applying these successful business models in other markets,” explained Ms Chua.

“Almost all of the top 100 have become either strong or dominant in their domestic markets. They are then able to pursue a more global strategy of acquisition and distribution in key overseas markets like Europe or the United States.”

Moving on from Manufacturing

Sector representation in the top 100 indicates an increasingly diverse economy in China. There has been a move away from the traditional dominance of manufacturing and production, towards services and intangible products.

The computing and communication equipment industry is the most-represented in the list, with 21 entrants.

Open for Business

The report indicates that, while successful businesses are based all over China, there are several metropolitan hotspots for growth.

Shenzhen is a rising headquarter for fast-growing businesses, home to 11 from this year’s list (up from seven in 2014). Beijing is home to 13 of the global giants, down from 17 in 2014.

There has been a movement towards headquartering in the south of China, in cities such as Fuzhou, Foshan and Shantou City. The report also shows an increase in the number of headquarters based in second-tier Chinese cities including Wuhan, Hangzhou, Suzhou and Nanjing.

The China’s next 100 global giants report considered companies listed on domestic Chinese and international stock exchanges, ranked against five measures:

  1. size (as measured by turnover);
  2. growth (in revenue);
  3. domestic presence;
  4. international presence; and
  5. business model and strategy.

The full list of China’s next 100 global giants is available at ACCA’s website.