Posts Tagged ‘Poland’

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When was the last time you had a pay rise? Many people might answer that question by saying “about five years ago.” Envy the Chinese, or Poles, or Mexicans, or Indians. According to PwC, they are likely to see their wages shoot up. This is set to be a very important development, with implications for investors and businesses seeking new opportunities. But maybe workers in the west don’t need to be too envious, the pay gap will still be pretty enormous. It’s a very important trend all the same.

Between now (2013) and 2030, real wages in the US and the UK are expected to rise by about a third. Let’s hope that’s right – relative to what we have seen over the last half decade that would be a result. But over that same time frame, average wages in India could more than quadruple in real dollar terms and more than triple in the Philippines and China.

Let this chart do the talking:

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So what are the implications? First of all see the expected rise in wages across these countries in the context of re-shoring. See: Is manufacturing coming home? It will clearly provide the impetus for companies re-shoring their manufacturing closer to where most of their customers are.

What we may see, as wages rise in China, is not only more manufacturing in home territories, but nearby too. Opportunity, as they say, knocks for Poland and Mexico.

Looking further ahead, PwC says places such as Turkey, Poland, China, and Mexico will therefore become more valuable as consumer markets, while low cost production could shift to other locations such as the Philippines. India could also gain from this shift, but only if it improves its infrastructure and female education levels and cuts red tape.

From a corporate/investment point of view, who will be the winners and losers? PwC reckons western companies who may emerge as winners will include retailers with strong franchise models, global brand owners, business and financial services, creative industries, healthcare and education providers, and niche high value added manufacturers.

As for losers: well, watch mass market manufacturers, financial services companies exposed in their domestic markets, and for companies that over-commit to emerging markets without the right local partners and business strategies.

© Investment & Business News 2013

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31 July 2013, and 1 August 2013: mark these dates in your diary. On these days economic news was revealed that meant one of two things; either the economy was well and truly on the mend, or we are seeing one very big blip. If it is the former, celebrate; if it is the latter enjoy it while it lasts.

They hadn’t expected much. Purchasing Managers’ Indices (PMIs) suggested the US economy had a rotten Q2. Sure, said the optimists, Q3 would be better, but the second quarter of this year was one we would rather forget. Then on 31July 2013 the hard data was released and it told a very different tale.

The US economy expanded at an annualised rate of 1.7 per cent in Q2, and by 1.4 per cent year on year. That was much better than expected, much better than the PMIs suggested.

Both business investment and residential investment helped – in the US when house prices go up so does construction, unlike in the UK where the correlation seems only very vague.

So that was the US. The news was good in the Eurozone too. The latest PMI from Markit on manufacturing in the region was out yesterday and it rose, hitting a two year high, with a reading of 50.3. To put that in perspective, any score over 50 is meant to correspond to growth. A reading of 50.3 is nothing special, but by recent standards it is positively wonderful.

Broken down by country things look like this:

Ireland,   51.0,    5-month high
Netherlands   50.8   24-month high
Germany   50.7   18-month high
Italy   50.4   26-month high
Spain   49.8   2-month low
France   49.7   17-month high
Austria   49.1   8-month high
Greece   47.0   43-month high

And finally we turn to the UK. The latest PMI for UK manufacturing rose to 54.6, a 26 month high. And get this. According to Markit which compiles the data along with CIPS: “New export business rose at the fastest pace for two years, reflecting increased sales to Australia, China, the euro area, Kenya, Mexico, the Middle East, Nigeria, Russia and the US.”

Apologies for raining on such a pleasant parade, but the story was not good everywhere. In Russia and Turkey the PMIs fell sharply and look worrisome, in China the picture is mixed, with the official PMI pointing to a modest pick-up and the unofficial PMI from HSBC/Markit, which puts more weight on smaller companies, deteriorating.

Still with the PMIs, the news on Poland and the Czech Republic was much better. Watch these two countries closely, especially Poland. If there is truth in all this talk about reshoring, Poland, with its proximity to the developed part of Europe, may be a big beneficiary.

One worry is that other data out yesterday showed that Sweden contracted in Q2. The out and out bears – those who are cynical for a living – question the PMIs. They say they did not predict the slow-down in Sweden; they did not predict the pick-up in the US, and they are giving a misleading picture on Europe. The big fear relates to central bankers tightening policy as a result of this data. The Fed may accelerate its plans to ease back on QE.

As for the European Central Bank, it is cautious and conservative to a T. There is a permanent danger it will lose its nerve, and tighten again, sending the Eurozone back into recession.

© Investment & Business News 2013

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There are those who are a tad cynical about talk that the UK economy is recovering. They look at debt – household and government debt – and with a somewhat sardonic smirk, say “Yeah sure, the UK economy is recovering.” But if you sign up to a school of thought that there has to be something real behind an economic recovery, then there is evidence that something real is there, slowly charging a real recovery, And this something real is based on companies bringing their manufacturing back home to Blighty.

John Lewis is at it. Its boss Andy Smith has said that he wants to see sales of UK-made products increase by 15 per cent across the retail chain in 2015, taking them to a value of around 12 per cent of the company’s turnover, or £550 million. He said: “We think our customers want to buy British if they can…A big area for us is home-based: our fitted kitchens are made in Birmingham, we have beds made in Leeds. We want to help British manufacturers to grow their share as much as we can.”

Earlier this month a report from YouGov on behalf of Business Birmingham found that a third of British Businesses, which currently use overseas suppliers, are planning to source more products from the UK.
There is no one reason. Businesses cited rising costs from overseas manufacturers and simpler transport and logistics as drivers for reshoring. Right now, the move back to the UK is modest. There is little sign of a new manufacturing boom. But everything starts small and if the surveys and anecdotal evidence prove right, the boom may yet follow.

But the UK – or indeed other developed economies – is not going to be the only winner. A recent survey produced by SCM also found that companies are bringing manufacturing closer to home but not always to home, with counties such as Mexico and Poland benefiting from the reshoring trend.

However, the SCM survey also found that much of the reshoring is symbolic. Kevin O’Marah at SCM said: “Our data and interviews with more than two dozen executives show that reshoring is symbolic. It does not represent the rebirth of American or European manufacturing.” The SCM survey suggests that reshoring is being driven by automation, and there ain’t many new jobs in that.

That may be true, and it is certainly the case that reshoring to the UK will not lead to a new jobs boom, but then again it will help.

Looking further ahead, the jury is out on what effect 3D printing will have. Will it destroy jobs, as commonsense might suggest, or create jobs, as businesses find it is viable to make products for consumers to order, tailoring them to individual customers?

© Investment & Business News 2013