China's Hidden Risks

China is such a frequent focus of speculation and comment that it sometimes seems that many of the challenges of doing business there must be mitigated because everything is so thoroughly documented at the moment. Whether that’s true or not, a CPO based there recently made it very clear during an interview how important it is right now to look behind the hype to get an idea of what’s really going on.

He related that “Things are more dynamic here – word travels fast. Business travels fast. Suppliers are faster and more optimistic than those in Europe. People in the west often say no to opportunities because they’re not instantly feasible or they’re not as hungry. No is not a response you hear over here. A contemporary of mine said it best: ‘everything is possible, everything is negotiable.’”

“It’s so important to put the optimism aside for a short while and make sure the right processes are in place,” he argued.

Going back an article from a Procurement Leaders magazine issue from April 2009 concerning the prospects for the Chinese economy during the global downturn, the general feeling was that suppliers’ attitudes were changing as the economy saw exports reined in and some sectors begin to seize up, following on from a period of rapid growth. They were becoming more flexible, the article noted.

And much of that rings true today, especially as China is supposedly about to post its first trade deficit for several months – there are plenty of reports of suppliers in China hungry foreign business and, indeed, offering an increasingly sophisticated and well-recognised service.

Over on the Spend Matters blog Jason Busch recently posted an interview with Lisa Reisman of MetalMiner on the sourcing situation in China. Her response conveyed this note of caution that chimed with our CPOs concerns. She said: “I think what suppliers and everyone close to China are starting to see is that we're dealing with yet another bubble market. A frenzy of investment has led to a lot of buying.”

“Supplier viability could still be a very real issue in certain markets,” she warned.

It’s long been difficult to gauge quite what is happening or will happen to this dynamic economy. But one thing does become clear, there are huge risks awaiting those not prepared to look beyond this veneer of optimism among suppliers to learn more about the markets they are sourcing from.

Taken from Procurement Today

What is Your Intention?

Intention is a word that is used by many people when they are explaining their goals and plans for the future, but intention is just not a good philosophy.
Either you are going to do something or not. It is like the word TRY. This is another word we need to eliminate. You take action or you don't. There is no middle ground..

Think of some of the famous people you know: Dr. Phil, President Obama, Oprah, Bill Gates or any really successful people don’t say try or intend they just do it. They either succeed or don’t but they do it!
So what is YOUR intention?

We worry about the prices of Gold and Silver yet John Clemmow of UBS made this statement a few weeks back "Rice is the new iron ore, and corn the new gold." Why?
He explained that as the global population swells to 9 billion by mid-century,  that food supply shocks IS hitting us now and while food shortages have been around as long as time immemorial never has there been such a demand for basic foods. Consider what has happened in the last few months.   We experienced the droughts in Australia that did not impact us much in North America, then the floods in Pakistan that in days destroyed staple foods; consecutively there were the heat waves around the Black Sea where Russia an exporter of grain put the breaks on exports sending prices souring.

Wheat, prices rose to some 75% since June in a matter of days,as the Black Sea region suffered through the most severe heat wave in nearly half a century. Did Gold or Silver or even oil perform at that rate?

The affected area ordinarily produces roughly one quarter of the entire global output. Consequently, experts forecast Russia's harvest well shy of the 75 million tonnes consumed domestically. Moscow has since implemented a ban on grain exports until late 2011.

Then there is Corn, that is up more than 40% since June as global stock levels, with a "stock to usage ratio" of a paltry 12%, dipped to their lowest levels in almost four decades. Unfavorable weather patterns in the US kicked the rally off, but it was the revelation that China, feeding the fastest growing middle class on the planet, imported a record 432,000 tonnes in August that really kicked it into overdrive.

Now the US diverts just a little over one third of its entire crop production to ethanol for fuel, which lead one commentator to declare the program a blatant act of "unsustainable, government-sponsored food burning."

To add to this we have heard about the rising cost of Coffee.  Prices have risen by over 40% since September, 2010.

What is all this about.  Maybe our attention should be watching the commodity markets and look for growth and potential there instead of Gold and Silver.   Remember the story of King Midas that every thing he touched turned to gold, but also remember that he could not eat  gold so where do our priorities lie?   Maybe the lesson is that we need to literally watch  our “food” supply chain more and how to better our environment through real ‘sustainable supply chain’ methodology that just giving lip service to it.

Is China still the place to be in?

A report by Credit Suisse said the vast majority of U.S. and European companies in China are expecting a "margin hit" over the next 12 months and fear they will not be able to pass on the costs to consumers, with the biggest worries in electronics, clothing and retail. Why?

Rising wage and production costs in China are eating into the profits of Western companies and may soon set off an exodus of multinational companies to cheaper locations.

In May General Electric, said it had plans to shift production of its hybrid water heater from China back to Kentucky next year after securing lower wages from U.S. workers. The company cited the narrowing pay gap, lower transport costs and shorter delivery times.
Pay in the industrial hubs of the Pearl River and Yangtze River deltas are much higher and likely to rise further after a wave of industrial disputes at Foxconn, Honda, Toyota and Omron.

Does/ it mean that manufacturing will return to North America? Maybe

Credit Suisse's survey of executives found that 55% of foreign firms in China could relocate plants to Bangladesh, Vietnam, Indonesia or other low-cost regions relatively easily, though it would be costly.

I guess only time will tell. If we can last long enough.

Read more:

The State of the US Economy

The Bloomberg report:

The Institute for Supply Management-Chicago Inc.'s business barometer rose to 62.3 this month, exceeding the forecast of economists surveyed which anticipated the measure would drop to 56. The June reading was 59.1 and figures greater than 50 signal expansion.

The worst US recession since the 1930s was even deeper than previously estimated, reflecting bigger slumps in consumer spending and housing, according to the Commerce Department's annual revisions also issued today.

The world's largest economy shrank 4.1 percent from the fourth quarter of 2007 to the second quarter of 2009, compared with the 3.7 percent drop previously. Household spending fell 1.2 percent in 2009, twice as much as previously projected and the biggest decline since 1942.

Consumer Slowdown

Consumer spending, which accounts for about 70 percent of the economy, rose at a 1.6 percent last quarter, compared with a 1.9 percent the previous three months that was smaller than previously estimated. Job gains have been slow to take hold, curbing household purchases.

The economy lost 8.4 million jobs during the recession that began in December 2007, the biggest employment slump in the post-World War II era. So far this year, company payrolls grew by 593,000 workers, according to Labor Department figures earlier this month.

Americans are torn about whether the federal government should focus on curbing spending or creating jobs, the poll conducted July 9-12 shows. Seven of 10 Americans say reducing unemployment is the priority. With more than half saying the deficit is "dangerously out of control."

The US government owes more than it can pay. When a debt cannot be paid by the borrower, someone else must pay. Typically, it's the lender who pays when the borrower defaults. But the US government doesn't have to default. It has another alternative, the aforementioned quantitative easing - monetary inflation, in other words. Instead of defaulting on its debts directly, the federal government can inflate them away.

Do you think Canada is immune? We too are struggling to survive. Our biggest trading partner is sick and we don't have the medicine to help.