Posts Tagged ‘yougov’

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Re-shoring. If the last decade or so has been characterised by off-shoring, then maybe we are set to enter a new era in which manufacturing returns to home markets, or, failing that, to countries much closer to home. Re-shoring: if it proves to be real, it may provide real, underlying strength to economic recovery. If it proves to be real, then real hope can be added to economic commentary; hope that this time recovery can last. And now we have evidence that it may indeed be happening, right now.

Sometimes predictions can become descriptions. You can forecast what the weather is going to be like. It is much easier and more credible, although perhaps less interesting, to describe what the weather is like. But Boston Consulting has moved from forecaster to describer in one very crucial area. A couple of years ago it made headlines for forecasting a new trend in manufacturing, as companies opt to make their products nearer to their home markets. Now it reckons it has evidence that this is actually happening.

Being one of the world’s largest consultancies, Boston Consulting’s surveys tend to be pretty meaningful. It asked executives at US companies with sales greater than $1 billion about their manufacturing plans. A year ago, 37 per cent said they “are planning to bring back production to the US from China or are actively considering it.” In its latest survey, the results of which were published this week, that ratio rose to 54 per cent.

So why, oh why? 43 per cent of respondents cited labour costs; 35 per cent proximity to customers; and 34 per cent product gave quality as their reason for considering re-shoring.

Michael Zinser, from the consultancy, said: “Companies are becoming more sophisticated in their understanding of all the factors that must be considered when deciding where to manufacture…When you look at the total cost of production for many goods, the US appears increasingly attractive.”

The Boston Consulting survey probably provides the most compelling evidence to date that re-shoring is occurring, but it is far from being the only evidence.

Back in July a survey from YouGov on behalf of Business Birmingham revealed that one in three companies that currently use overseas suppliers are planning to source more products in the UK. John Lewis recently said that it plans to increase the volume of made in the UK products by 15 per cent between now and 2015.

This development is good news in more ways than one; it may even be very good news in quite a profound way, but more of that in a moment.

But what about China? This is surely not such an encouraging development for the economy behind the Great Wall. Well maybe it isn’t, but maybe it actually is. What China needs is for wages to rise, and for it to see more growth on the back of rising demand. Its economy is simply out of balance. No one is predicting the end of Chinese manufacturing, merely that it may lose some of its dominance. If this loss occurs because wages in China have risen, creating more demand, this is good news for China, its suppliers and the companies that sell to its consumers. Okay, changes are never smooth. There will be short-term headaches caused by re-shoring, but the overall impact will be positive rather than negative.

But there is another perhaps more important implication.

Over the last few decades we have seen growing inequality, and company profits taking up a higher proportion of GDP, while wages take up a lower proportion. Some think this is good thing, and accuse those who criticise of being guilty of the politics of envy. They miss the point. You may or may not think inequality is morally justified, but it is clear that from an economic point of view it is inefficient. For an economy to grow it needs demand to rise, and in the long run this can only occur if the fruits of growth trickle down into wage packets. It is perhaps no coincidence that the golden age of economic growth occurred in the 25 years after the end of World War II, an era which saw much more equality than we see today.

It is possible that re-shoring is symptomatic of changes in the balance of power across the markets. For years we have seen what the IMF calls the globalisation of labour: the reward to capital rose, the reward to labour fell. The underlying cause of this may have been the one-off effect of millions of Chinese workers joining the globalised economy. As this one-off effect begins to ebb, we may see the globalisation of labour work in reverse.

See also: Wages set to rise – in emerging markets

© 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

Let’s say you get paid on the last day of the month, but what happens if your pay doesn’t arrive? You check your bank account and it’s not there, no pay. How long will you be able to last?

According to research from HSBC, no less than 8 million households would run out of money before the weekend.

In fact, HSBC reckons that 31 per cent of all UK households have less than £250 set aside as a financial safety net. Apparently, the recommended minimum ‘salary cushion’ is three months’ average monthly take-home pay, which is £5,756.20.

So there you have it; we are not saving enough. We must save more.

On this theme, a report was issued last week from an organised called Save Our Savers. Here is the report if you want to read it: it’s called ‘What’s wrong with the economy’. http://www.saveoursavers.co.uk/whats-wrong-with-the-economy/. The thing is the report said a lot that was right. It pointed to the huge level of debt in the UK, and referred to a zombie economy, one in which failing businesses and business practises are saved by the government, meaning we can never move on. It is just that the report’s conclusion was wrong.

This is what it said: “Savings are being undermined. But savings provide the investment funds without which an economy is incapable of long-term sustained growth. Low interest rates and QE do not produce growth but distort the economy, devalue pensions and annuities and create inflation.”

But the report’s authors miss the point. While it is true that some sectors of the UK are in debt – way too much debt – other sectors are saving too much. According to a report from Ernst and Young published earlier this year, corporates themselves are sitting on a cash pile of a £754 billion.

According to a survey from YouGov, when asked how they would spend a windfall equivalent to one month’s income, 84 per cent of households said they would save it, or use it to pay down debts (33.7 per cent), while only 16 per cent said they would spend it.

You can understand why households want to do that. The truth is that despite interest rates being at record lows, households want to save more.

Zoom out, and take a look at the big picture. Factor in the retirement of the baby boomers. Just to remind you, the 1990s was a good time to retire because equities had performed so well over the previous couple of decades. Most of the noughties were a good time to retire for those who owned their home because of the rise in house prices.

But we are set to see the largest scale of retirement ever in the history of this country. If the odd baby boomer downsizes and funds his or her retirement from the equity in his or her home, that may be fine. But when this occurs en masse, the result won’t be so pretty.

Baby boomers need to save more, and despite low interest rates, will save more.

But for UK plc this will be a disaster.

As savings rise, spending will fall, GDP will contract, and debt to GDP will rise even further.

Returning to the HSBC report,  no doubt UK households would feel a lot happier if they had savings equal to three months’ pay in their bank account. But if this were to happen too quickly, say over the next two years; if households everywhere were try to build up savings very rapidly, the result may well be a much deeper recession than the one we just pulled out of. Job losses would mount, and savings worth three months’ pay wouldn’t be enough.

What would make sense for the economy at large, however, is for a kind of national insurance, in which we put, say, 12 per cent of our pay into a national scheme, and those who lose their jobs, can dig into this national savings scheme. It is just that some might say such a system already exists, albeit many want to be rid of it.

And finally, as for the argument that QE and bank bail-outs are bad for savers, just remember if banks had not been bailed out, the result would have been for banks across the world to go under. The only way savers have avoided losing their savings was deposit protection schemes. In other words, savers would have expected to have been bailed out by governments, which in turn would have led to even greater government debt.

©2012 Investment and Business News.

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