Daily Archives: February 22, 2007

Sourcing 2007: Part IV

In What’s Ahead for 2007? Wharton predicted the following:

  • In U.S., Housing Slump Tempers Upbeat View
  • India Is Rocking
  • Spain and Europe: Banking on Continued Growth
  • Challenges Ahead for Latin America
  • The Outlook from Inside China

Furthermore, be it directly or indirectly, all of these will impact your supply chain. After all, falling housing costs are dragging down the GDP and weakening your strength in the global market. Moreover, if housing costs stop falling and start rising again, an employee’s cost of living will rise, and as cost of living rises, so does wage pressure – after all, if you do not, or your supplier does not, keep up with inflation, given the current talent crunch, your best employees will likely go elsewhere. Thus, your costs are going up, and not just because of raw materials.

The rocking stock market is driving investment in India, which means that if you’re looking to enter the country, you will have a rapidly diminishing available talent pool to pick from. But if you’re already doing business in India, you could be leading the pack in the year ahead.

With significant price gains in European stock markets and a strong euro, investment is going to continue to flow into the region. Expect stronger competition from your European counterparts in the year ahead.

Despite a strengthening economy, Wharton has it right when they note that some governmental reforms are necessary in order to achieve more stable, and less corrupt, political systems and that growth in many Latin American countries will continue to be limited by the weaknesses of the state and that the consequences of this weakness include deficient public services, a fragile judicial system, high rates of crime and corruption, tax evasion and a sizable informal economy. Of course, the same can be said about parts of Africa, but they don’t seem to be under the microscope this year.

China is going to effect you no matter where you are or what market you’re in, even if no one can tell you how. That’s all I have to say for now.

The IACCM noted that even though China and India are the emerging markets of the early 21st century, tomorrow’s hot spot could be a different market altogether. The country they highlight is Russia, the world’s eighth most populous nation that is rich in natural resources, including timber and farmland. Russia has problems similar to those Wharton pointed out for Latin America, including weak intellectual-property rights, pervasive corruption, and a shaky government commitment to private enterprise, but as progress is made in these areas, those countries that are able to establish a solid base early could be poised for explosive future growth.

CNN Money.com reminded us that right now the biggest problem with job growth isn’t too few new jobs, it’s too few skilled workers. The talent war is in full swing and this year it will be taking no prisoners.

Back in October The Economist warned us of the Slow Road Ahead and that America’s long-term potential rate of growth is falling, perhaps to its lowest pace in over a century. Canadian Business echoed the sentiment in its Outlook 2007 edition that started the year off. It pointed out that on a year-over-year basis, real economic growth slowed to 3% in the third quarter of 2006–the lowest since early 2003. And it’s likely to get worse. At this point, the primary drag is coming from the direct effects of the burst housing bubble. A year ago, resale home prices were rising at a 17% annual rate; they’re now falling at a 3% rate, the worst result in at least 38 years. Pulling this all together, we expect global growth, excluding the United States, to come in at 5.3% in 2007, not far off 2006′s generational best of 5.8%. Including the U.S. drags the global forecast down to 4.5%, the lowest in four years. Thus, things will still be tough in North America, but that’s a good thing – it will force us to become better at spend and supplier management, which will allow those companies that do to take off like a rocket in the next upswing.

Wharton, The Economist, Canadian Business, CNN Money, and the IACCM are not the only media outlets making predictions – Aberdeen and AMR jumped into the game with the new year, but they always have a lot to say, and I’ll be tackling their viewpoints throughout the year.