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Pinnacle Sourcing & Consultancy Pvt. Ltd. © 2015 1
Welcome to "Pinnacle Buzz”– a quarterly newsletter designed to keep you informed on the
latest developments in strategic sourcing, procurement, macro-economic and key commodity
trends with a special focus on low cost countries.
Thank you for your tremendous response and feedback to the previous editions of the buzz
which is very much appreciated. In this edition, we have focused on topics viz. Global Economy
Outlook, Relative Manufacturing Costs by Country, Understanding the Options for Sourcing
from Vietnam and how to mitigate the Risk of currency fluctuation in your Business.
We greatly value your interests and opinion, and you have been identified as a key
stakeholder. As such we have included you on our mailing list for this edition. If you do not
want to continue receiving this quarterly newsletter then please send us an email with an
unsubscribe note. We are also open to and shall very much appreciate your candid feedback.
Yours Sincerely,
Himanshu Kapoor
Inside the issue
I Global Economy Outlook
II Relative Manufacturing Costs by Country
III Understanding the Options for Sourcing from Vietnam
IV Currency Rates Should Be Part of Your Risk-Management Strategy
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Global Economy Outlook
Emerging markets in Asia and Africa still reign supreme: They're at the top of global growth projections over the next
two years.
The world is expected to grow 3.2 percent in 2015 and 3.7 percent next year after expanding 3.3 percent in each of the
past two years. China, the Philippines, Kenya, India and Indonesia, which together make up about 16 percent of global
gross domestic product, are all forecast to grow more than 5 percent in 2015.
By comparison, the U.S. and U.K., which combined account for about a quarter of global growth, are expected
to grow 3.1 percent and 2.6 percent this year, respectively. The euro area probably will expand just 1.2
percent.
China still remains the fastest-growing G-20 nation, even though the Asian economy is no longer expanding at
the pace it did a few years ago. China's economy grew 7.3 percent in the fourth quarter of 2014 from a year
earlier, and is expected to slow to 7 percent in 2015.
Source: http://www.bloomberg.com/news/articles/ & online research
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Relative Manufacturing Costs by Country (US = 100)
China, Brazil "Under Pressure" Indonesia & India being the “Best Bets”
Comparing the largest 25 global exporters, which cover more than 90% of total world exports, Indonesia
Scores 83 (means manufacturing cost is 17% lower than in the US) where as Australia is 30% higher than US
costs. The US is used as the baseline index score of 100
India is the second least expensive after Indonesia with Manufacturing Cost Index 87, according to Deutsche
Bank. That's also going to give Indian manufacturing companies a serious advantage in selling their
manufactured goods round the world.
However, this index is only looking at direct manufacturing costs - it is not considering other factors like
intellectual property risk, longer lead times, higher inventory levels, international shipping costs, etc.
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Source:- US Economic Census, DB research
Understanding the Options for Sourcing from Vietnam
Vietnam has become an increasingly popular sourcing location for companies around the globe, not only Asian
companies in South Korea, Japan, Singapore and Taiwan but also many Western companies as well. According
to GSO (Vietnam General Statistic Office), GDP of Vietnam in 2014 reached $ 184 billion, up 5.98% compared
to 2013.
Few Quick facts on Vietnam: -
1. Strategic location – Vietnam's proximity to Southeast Asia's other major and developing markets is one
of the key components to attract foreign investors. Vietnam is located at the centre of Southeast Asia;
this location provides it a lot of trade benefits. Due to its close proximity to China and most other
Association of South East Asian Nations (ASEAN) countries, it is a potentially big trading partner for
these countries.
2. A low manufacturing cost but skilled workforce country:- Vietnam has a large, skilled and low-cost
workforce, which has made the country attractive to foreign investors. The labor pool is increasing up
to 1.5mn a year, while wage costs are still low as compared with other countries in the region,
although wage growth has picked up pace in recent years
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3. Foreign Direct Investment strongly supported by Government:-
The majority of FDI into Vietnam is from Asian Countries; The TOP three countries are Japan followed
by Singapore then Korea. USA invested 10602.85 million and remains at no 7 in top 10 Countries
investing in Vietnam. There has been 65.5% Year on Year increase, with the total amount of
Investment Capital reaching $19,234 Million of first ten months of 2013.Manufacturing and Processing
captured 60 % of total FDI attracted. (Ref: http://www.iflr.com/Article )
4. Other Interesting Facts: - Vietnam is member of the WTO since January 2007.
• Free Trade Agreement with the EU since June 2012
• Bilateral trade agreement with the US in effect since December 2001.
• Vietnam is under negotiation to be a member of Trans-Pacific Partnership (TPP), which will
result in increase trade with US & overall boost to Export.
Source: - Pinnacle Research
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Currency Rates Should Be Part of Your Risk-Management Strategy
The impact of changing oil prices on international traders gets a lot of press. Less covered in the media, yet
just as important to corporate profits, is fluctuations in the value of the dollar and other major currencies.
A strong dollar is a sign of confidence by international investors in that currency. But it's also a killer for U.S.
exports. American products are less competitive abroad when buyers have to pay in dollars. (At the same
time, of course, U.S. imports become cheaper, which benefits the consumer. So goes the perpetual seesaw of
global trade.)
Over the last year, following a period of relative stability, the dollar has been strengthening steadily against a
basket of currencies, including the Euro, British pound, Canadian dollar, Indian rupee and to a lesser extent the
Chinese Yuan. The woes of the Euro are especially evident, triggered by uncertainty over the fate of the euro
zone and the status of troubled economies such as those of Greece and Spain. Under such a scenario, the U.S.
dollar could be the last currency standing. But even if that outcome doesn’t play out, traders need to be
acutely aware of potential currency swings, and incorporate them into their global risk analyses.
Companies might consider the same policy that has helped to smooth out the uncertainties of oil supply and
demand: hedging. At a time when prices were on the rise, some transportation providers made forward buys
of fuel, locking in their rate for several years. Airlines were among those to take full advantage of the strategy,
which kept it profitable at a time when many rivals were bleeding red ink. (Today’s relatively low oil prices, of
course, make hedging less of an attractive option – at least for now.)
Currency can be hedged as well. It is advisable for companies to lock in an exchange rate for all or a portion of
their cash-flow-based activities, including production and import costs. If they believe the currency is going to
move in their favor, they might reduce the hedge to half that amount. Option contracts are also available to
help limit the downside from a stubbornly strong dollar.
Currency Hedging could be an option for risk management -
What is Currency Hedging: - In very simple terms, currency hedging is the act of entering into a financial
contract in order to protect against unexpected, expected or anticipated changes in currency exchange rates.
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How to Hedge Currency
The hedge is an insurance policy. Whether you're transacting business abroad or simply holding onto foreign
currencies as an investment, a fluctuation in currency can cause serious losses very quickly. A hedge is a way
to guard against this: Invest in a position that offsets (bets against) an investment you already own and any
losses in one position will be buoyed up by gains in the other Source: -http://www.supplychainbrain.com/content & Online Research
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