Posts tagged ‘boston consulting group’

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01/09/2016

Indian manufacturing growth at 13-month high in August | Reuters

Indian factory activity expanded at its fastest pace since mid-2015 in August, helped by surging new orders, while only modest price increases should give the central bank scope to ease policy further, a survey showed.

The data will cheer policymakers after an official report on Wednesday showed Indian annual economic growth slowed in the April-June quarter to 7.1 percent, short of expectations for 7.6 percent in a Reuters poll.

The Nikkei/Markit Manufacturing Purchasing Managers Index rose to 52.6 in August from July’s 51.8, marking its eighth month above the 50 level that separates growth from contraction.

“Manufacturing PMI data show that the positive momentum seen at the beginning of the second semester has been carried over into August, with expansion rates for new work, buying levels and production accelerating further,” said Pollyanna De Lima, economist at survey compiler Markit.

The new orders sub-index, which takes into account both domestic and external demand, was 54.8 in August – its highest since December 2014 and indicating robust demand for Indian manufactured goods.

That pushed factories to increase production and the output sub-index climbed to a 12-month peak in August.But price growth lost momentum last month, with raw material costs increasing at their weakest rate in six months and output prices barely rising at all, suggesting consumer inflation could cool in coming months.

“In light of these numbers, the Reserve Bank of India has scope to loosen monetary policy in the upcoming meeting to further support economic growth in India,” De Lima said.On Oct. 4, the RBI is due to announce its first policy decision under newly-appointed governor Urjit Patel, who economists expect to broadly follow in outgoing chief Raghuram Rajan‘s footsteps.

Economists in a Reuters poll last month predicted the RBI would cut the repo rate by 25 basis points to 6.25 percent in the final three months of the year.

They see little steam left in the RBI’s current easing cycle, in which the policy repo rate has come down by 150 basis points since January 2015, to its lowest in more than five years.Consumer inflation in India was 6.07 percent in July, well above the RBI’s March 2017 medium-term target of 5 percent.

Source: Indian manufacturing growth at 13-month high in August | Reuters

Posted in Economics, growth, India alert, Manufacturing | 1 Comment »

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27/01/2016

The Drivers of Growth in China’s New Normal – China Real Time Report – WSJ

As China’s economic growth slows and the manufacturing and industrial sectors face declines, many companies are trying to determine whether or where they can tap into more growth.

The old drivers of the economy, including the middle class and the export sector, are out. What’s in for China’s so-called “new normal” is the upper-middle class and the service sector.

Affluent shoppers under the age of 35 and Internet surfers will push China’s consumer market up to $6.5 trillion in sales by 2020, an increase of 54% from 2015, according to consultancy the Boston Consulting Group. Upper-middle class households, defined as those making between $24,001 and $46,000 in annual income, will double to 100 million in population by 2020 and account for 30% of all urban households in the country.

Consumption is not isolated from the slowdown, but China hasn’t stopped shopping, consultancy The Boston Consulting Group said in a recent report. Consumption growth this year is poised to outpace GDP growth, which economists expect to range between 6% and 6.6%, BCG said.

Source: The Drivers of Growth in China’s New Normal – China Real Time Report – WSJ

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26/10/2014

China’s Rising Wages and the ‘Made in USA’ Revival – Businessweek

It wasn’t long ago that China was the cheapest place on earth to make just about anything. When China joined the World Trade Organization in 2001, the average hourly manufacturing wage in the Yangtze River Delta was 82¢ an hour. Oil was $20 a barrel, so no matter where you were ultimately selling your Chinese-made goods, it didn’t cost much to get it there.

A technician prepares a VIPturbo Modem at the SRT Wireless satellite communications manufacturing plant in Davie, Florida on Aug. 18

China’s still cheap, but it’s nowhere near the deal it was just a few years ago. Workers in the Yangtze make almost $5 an hour today, and oil costs about $85 a barrel. Suddenly the benefits of making things in China aren’t so apparent, especially if you’re selling those things to consumers in the U.S. A new survey by Boston Consulting Group found that 16 percent of American manufacturing executives say they’re already bringing production back home from China. That’s up from 13 percent a year ago. Twenty percent said they would consider doing so in the near future.

American manufacturing’s increased competitiveness against China is a story that’s been told for a few years now, giving rise to the term “reshoring.” But it’s not just China that the U.S. is gaining against. For companies making goods for sale in the U.S., Mexico has long been the place to go—and that’s slipping, too. The BCG survey shows that the U.S. has passed Mexico as the place where companies are most likely to build a new plant to make things to sell in the U.S.

via China’s Rising Wages and the ‘Made in USA’ Revival – Businessweek.

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20/10/2014

Grocery retailing in India: A long way from the supermarket | The Economist

ON THE morning of Dussehra, a Hindu festival, Amar Singh is explaining why he stocks “exotic” produce, such as broccoli and iceberg lettuce, at his vegetable stall in Thane, a commuter city north of Mumbai. “I have to keep the customer in my grasp,” he says. Mr Singh has traded hereabouts for 20 years, and seems unperturbed by the supermarket chains whose branches have recently sprouted nearby. They are cheaper, he says, but they cannot match him on quality. As he speaks he sorts a tray of beans, discarding stringier ones. His assistant, Dabloo, has spent the early hours going through sacks of produce at a wholesale market to pick the best stuff.

The 10m-12m small traders like Mr Singh are a protected species. Complex and changeable rules governing foreign direct investment have made it tricky for rich-world chains to set up shop in India. They might count themselves lucky. India’s home-grown supermarkets account for only 2% of food and grocery sales and are struggling to make a profit. Revenues have not kept pace with rising rents. The Thane branch of Reliance Fresh, one of India’s big chains (see table), shut up shop recently. More closures seem likely. The bet made by the chains was that as India became richer, its consumers would abandon kerbside stalls and kiranas (small family-owned shops) for air-conditioned stores with wide aisles and broad ranges. Why has it not paid off?

In large part it is because supermarkets are not a compelling draw in terms of price and service. Most shoppers in India buy dairy products, vegetables and fruit either daily or every two to three days, and the traditional trade has a lock on these frequent purchases, according to research by the Boston Consulting Group (BCG). Its hold weakens a bit (and the appeal of supermarkets correspondingly tightens) on rich consumers and for less regular purchases: packaged foods; soaps, detergents and other groceries; and staples, such as rice and grains (see chart). But in general even affluent consumers prefer traditional stores, because they are closer to home, are usually open longer and offer credit to familiar customers. Many will deliver free of charge.

Traditional traders are also seen as cheaper. In fact, says Abheek Singhi of BCG, a full basket of goods is 3-4% cheaper at the supermarket, in part because it will sell a few vegetables and some staples as loss-leaders. Mr Singh’s stall sells tomatoes at 50 rupees a kilogram. In the local D-Mart, a low-frills supermarket, they sell for just 42 rupees. Yet Mr Singh has a fair claim to having the reddest variety. The chains ought to be able to offer keener prices on branded goods by squeezing their suppliers. But none of the supermarkets has enough muscle to push around Unilever or Procter & Gamble in negotiations. And India has a law that mandates a maximum retail price for packaged goods, which allows manufacturers a degree of control over retailers’ margins.

The supermarkets can offer a greater variety of groceries than the neighbourhood mom-and-pop store or stall-trader. But that is not as big a competitive edge as it may seem, says BCG’s Mr Singhi. Supermarkets compete with clusters of kiranas, which together can offer most of the same products. Next door to Mr Singh’s stall in Thane kiranas sell confectionary, fresh eggs and poultry.

via Grocery retailing in India: A long way from the supermarket | The Economist.

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12/09/2014

Schumpeter: The China wave | The Economist

MANAGEMENT thinkers have paid surprisingly little attention to how Chinese firms are run. They routinely ascribe those firms’ rapid growth in recent years to their copious supply of cheap labour, or to generous financial backing from the state, rather than inventiveness. They have much more time for India, particularly its knack for frugal innovation, with all those colourful stories of banks putting cash machines on bikes and taking them into the countryside, and companies building water purifiers out of coconut husks.

However, it seems unlikely that China’s companies have come as far as they have just by applying lots of labour and capital. It is also hard to imagine that the huge expansion of China’s education system and its technology industries is not producing fresh management thinking. Western companies knew little about Japan’s system of lean production until its carmakers gobbled up their markets. The danger is that the same will happen with Chinese management ideas.

There are, however, signs that these are now getting the attention they deserve. The MIT Sloan Management Review devotes much of its current issue to examining innovation and management lessons from China. Peter Williamson and Eden Yin of Cambridge University’s Judge Business School contribute a fascinating essay on “Accelerated Innovation: the New Challenge from China”. The latest issue of the Harvard Business Review has a piece on “A Chinese Approach to Management” by Thomas Hout of the Monterey Institute of International Studies and David Michael of the Boston Consulting Group.

The first article suggests that the Chinese, like the post-war Japanese, have been doing a great deal of innovation under the radar. The second demonstrates that they are becoming more creative as they seek to solve the problems of a rapidly advancing consumer economy.

Messrs Williamson and Yin focus on the way that many Chinese companies are using mass-production techniques to speed up not just the manufacture but also the development of products. They break up the innovation process into a large number of small steps and then assign (often sizeable) teams to work on each step. For example, WuXiAppTec, a drug company, divided the search for a new treatment for chronic hepatitis C into eight steps, assigning dozens of people to each. The firm also adapted German software that was designed for managing assembly lines to co-ordinate the innovation process. Whereas a Western software firm typically releases an early “beta” version of a product only to a select group of guinea-pigs, Chinese firms are more likely to launch theirs straight into the market: they use consumers as co-creators, seeking their feedback and then rapidly adjusting their products.

This sort of accelerated innovation may not generate stunning breakthroughs. But that is not what it is for. China’s success has depended on its ability to be a “fast follower”, copying foreign ideas and turning them into mass-market products. Messrs Williamson and Yin argue that the Chinese can now apply accelerated innovation in lots of areas; and that the technique helps them make better use of one of the country’s most important resources—a pool of competent but unexceptional technicians.

Messrs Hout and Michael are also struck by Chinese companies’ emphasis on speed, and their willingness to throw things at the market. Goodbaby, which makes prams and car seats, introduces about 100 new products each quarter. Broad Group, a construction firm, puts up buildings rapidly by breaking them up into modules, fabricating those modules in factories, pre-loaded with utilities, and then plugging them together: an idea long talked about in the rich world but not much implemented.

However, their paper’s focus is broader—on how Chinese entrepreneurs are coping with the speed at which technology-related industries are changing. They note that even big companies delegate lots of authority to preserve flexibility: Haier, a home-appliances giant, consists of thousands of mini-companies, each of which reports directly to the chairman. That is an interesting contrast with Japanese firms’ obsession with seniority and consensus-building.

Messrs Hout and Michael also highlight the creativity of some Chinese companies when faced with the need to build entire ecosystems out of thin air, from supply chains to labour pools. Hai Di Lao, a hotpot restaurant chain, deals with one of its biggest problems—recruiting and retaining young people to train as branch managers—by offering them housing, schooling for their children and trips abroad. This sort of imaginative thinking on how to attract good workers will increasingly be needed now that China has used up most of its surplus rural labour.

via Schumpeter: The China wave | The Economist.

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05/09/2014

U.S. South Draws Global Manufacturers With Low Taxes, Cheap Labor – Businessweek

Just before the recession hit in 2007, Electrolux (ELUXA:SS), the Swedish home-appliance maker, was trying to decide what to do about an aging plant outside Montreal. The building was more than 100 years old and the line of high-end stoves and ovens produced there needed a refresh. The factory’s 1,300 union workers earned around $20 an hour.

Rather than sink more money into the old plant, Electrolux decided to move where it could operate more cheaply. In Europe, it was shifting work from Sweden, England, and Denmark, to Hungary, Poland, and Thailand, where workers are paid less. In North America, Electrolux settled on another low-cost region: the American South.

Alabama, North Carolina, and Tennessee—along with Mexico—all competed for the plant, offering generous incentive packages. The winner was Tennessee, which together with the city of Memphis and Shelby County, assembled an offer that, according to Electrolux, was worth $182 million, including public infrastructure funds, tax breaks, and, crucially, worker training. The company committed $100 million to build the plant. In December 2010, Electrolux announced that a site just eight miles from Graceland would be home to its most advanced factory. “We don’t just grab at every project that comes through here,” says Memphis Mayor A C Wharton Jr. “But this one was particularly appealing.”

Manufacturing is slowly returning to the U.S.—and much of the action has been below the Mason-Dixon line. With its low tax rates and rules that discourage unionization, the South has for decades been seen as business-friendly, which helped the region attract service companies that rely on low-skilled workers, such as call centers and warehouses. Now industries such as autos and aerospace are moving in. According to Southern Business & Development (SB&D) magazine, which tracks commercial projects valued at more than $30 million, manufacturing made up 68 percent of investments announced last year. The number of projects totaled 410, the most in 20 years.

Changing conditions in the oil market and China have a lot to do with manufacturing’s resurgence in the South. In 2001, when China joined the World Trade Organization, the price of oil was $20 a barrel and the hourly manufacturing wage in China’s Yangtze River Delta was 82¢ an hour. Oil is now more than $100 a barrel and workers in the Yangtze make $4.93 an hour. The once enormous manufacturing advantage of the People’s Republic has in some cases vanished.

An April 2014 study by Boston Consulting Group found that the U.S. now ranks second only to China in manufacturing competitiveness among the top 10 exporting countries. Three years ago, BCG Managing Director Harold Sirkin, co-author of the report, forecast that states such as South Carolina, Alabama, and Tennessee would become “among the least expensive production sites in the industrialized world.” That’s especially true for companies making things for sale in the U.S. The South “has become the cheapest place to make things inside the largest economy in the world,” says Michael Randle, publisher of SB&D.

via U.S. South Draws Global Manufacturers With Low Taxes, Cheap Labor – Businessweek.

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12/06/2014

China Minting Millionaires in Global Wealth Surge – Businessweek

Where do the world’s rich live? As has long been true, the U.S. has more millionaires (in U.S. dollars) than any other country, with 7.1 million. But China last year came in second with 2.4 million millionaire households, beating Japan with half as many. The number of millionaire families around the world reached 16.3 million last year, up from 13.7 million the year before.

Visitors crowd around a luxury yacht on display during the 19th China International Boat Show in Shanghai on April 10

All told, the total value of global private wealth grew far faster than global economic output, up 14.6 percent, to $152 trillion, compared with an 8.6 percent increase in 2012. Much of the new money originated in the Asia-Pacific region (excluding Japan), up by 30.5 percent, to $37 trillion. That put Asia in the No. 3 spot for riches, behind North America and Europe, according to the 14th annual survey on private wealth by Boston Consulting Group.

Driven by rapid GDP growth in China and India, Asia is expected to surpass North America and Europe as the leading source of global wealth in 2018. That year, the global pot of gold will total a bit less than $200 trillion, with the proportion from Asia projected to reach $61 trillion, slightly more than North America, with $59.1 trillion. “The Asia-Pacific region and its new wealth will account for about half of the total growth,” the report predicts.

via China Minting Millionaires in Global Wealth Surge – Businessweek.

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07/01/2013

* Use of student interns highlights China labor shortage

Reuters: “In September, the largest factory in the northeastern Chinese coastal city of Yantai called on the local government with a problem – a shortage of 19,000 workers as the deadline on a big order approached.

Chinese college students majoring in textile work at a garment factory in Jiaxing, Zhejiang province, October 19, 2012. More and more factories in China move inland from higher-cost coastal manufacturing centers, labor is turning out to be neither as cheap nor abundant as many companies believed. As a result, many multinationals and their suppliers are corralling millions of teenage vocational students to work long hours doing assembly line jobs that might otherwise go unfilled - jobs that the students have no choice but to accept. Picture taken October 19, 2012. REUTERS/Stringer

Yantai officials came to the rescue, ordering vocational high schools to send students to the plant run by Foxconn Technology Group, a Taiwanese maker of smartphones, computers and gaming equipment.

As firms like Foxconn shift factories away from higher-cost centers in the Pearl River Delta in southern Guangdong province, they are discovering that workers in new locations across China are not as abundant as they had expected.

That has prompted multinationals and their suppliers to use millions of teenage students from vocational and technical schools on assembly lines. The schools teach a variety of trades and include mandatory work experience, which in practice means students must accept work assignments to graduate.

In any given year, at least 8 million vocational students man China’s assembly lines and workshops, according to Ministry of Education estimates – or one in eight Chinese aged 16 to 18. In 2010, the ministry ordered vocational schools to fill any shortages in the workforce. The minimum legal working age is 16.

Foxconn, the trading name of Hon Hai Precision Industry, employs 1.2 million workers across China. Nearly 3 percent are student interns.

The company “has a huge appetite for workers”, Wang Weihui, vice director of the Yantai Fushan Polytechnic School, told Reuters during a recent visit to the city.

“It tightens the labor market,” said Wang, whose school sends its students to work at Foxconn and other firms.

Local governments eager to please new investors lean on schools to meet any worker shortfall. That’s what Yantai, in Shandong province, did in September when Foxconn had trouble filling Christmas orders for Nintendo Co Ltd Wii game consoles.

“It has been easier to recruit workers in the Pearl River Delta than some inland locations,” Foxconn told Reuters in written comments in late December.

Some companies cite rising wages in southern China for the shift elsewhere. Wages are a growing component of manufacturing costs in China, making up to 30 percent of the total depending on the industry, according to the Boston Consulting Group.

Wages began to rise around 2006 as the migration of rural workers to Guangdong ebbed. China’s one-child policy, plus a jump in higher education enrollment, further depleted the number of new entrants to the workforce, forcing up wages.”

via Use of student interns highlights China labor shortage | Reuters.

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15/07/2012

* Google Tries Something Retro – Made in the U.S.A.

NYTimes: “Etched into the base of Google’s new wireless home media player that was introduced on Wednesday is its most intriguing feature. On the underside of the Nexus Q is a simple inscription: “Designed and Manufactured in the U.S.A.”

The Google executives and engineers who decided to build the player here are engaged in an experiment in American manufacturing. “We’ve been absent for so long, we decided, ‘Why don’t we try it and see what happens?’ ” said Andy Rubin, the Google executive who leads the company’s Android mobile business.

Google is not saying a lot about its domestic manufacturing, declining even to disclose publicly where the factory is in Silicon Valley. It also is not saying much about the source of many of its parts in the United States. And Mr. Rubin said the company was not engaged in a crusade.

Still, the project will be closely watched by other electronics companies. It has become accepted wisdom that consumer electronics products can no longer be made in the United States. During the last decade, abundant low-cost Chinese labor and looser environmental regulations have virtually erased what was once a vibrant American industry.

Since the 1990s, one American company after another, including Hewlett-Packard, Dell and Apple, has become a design and marketing shell, with production shifted to contract manufacturers in Shenzhen and elsewhere in China.

Now that trend may be showing early signs of reversing.

It’s a trickle, but some American companies are again making products in the United States. While many of those companies have been small, like ET Water Systems, there have also been some highly visible moves by America’s largest consumer and industrial manufacturers. General Electric and Caterpillar, for example, have moved assembly operations back to the United States in the last year. (Airbus, a European company, is said to be near a deal to build jets in Alabama.)

There is no single reason for the change. Rising labor and energy costs have made manufacturing in China significantly more expensive; transportation costs have risen; companies have become increasingly aware of the risks of the theft of intellectual property when products are made in China; and in a business where time-to-market is a competitive advantage, it is easier for engineers to drive 10 minutes on the freeway to the factory than to fly for 16 hours.

That was true for ET Water Systems, a California company. “You need a collaboration that is real time,” said Pat McIntyre, chief executive of the maker of irrigation management systems, which recently moved its manufacturing operation from Dalian, China, to Silicon Valley. “We prefer local, frankly, because sending one of our people to China for two weeks at a time is challenging.”

Harold L. Sirkin, a managing director at Boston Consulting Group, said, “At 58 cents an hour, bringing manufacturing back was impossible, but at $3 to $6 an hour, where wages are today in coastal China, all of a sudden the equation changes.”

The firm reported in April that one-third of American companies with revenue greater than $1 billion were either planning or considering to move manufacturing back to the United States. Boston Consulting predicted that the reversal could bring two million to three million jobs back to this country.”

via Google Tries Something Retro – Made in the U.S.A. – NYTimes.com.

This cost difference is continuing to erode away as China has been increasing its basic wages by between 10-15% per annum for the last 10 years and intends to continue doing so in order to improve the standard of living of the working person thereby passing on the benefits of the improving GDP.

See also:

Posted in China alert, Digital communications, Economics, Labour, Manufacturing, Reverse off-shoring, Salaries, Technology | 2 Comments »

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23/05/2012

* Detroit’s Wages Take on China’s

WSJ.com: “For the past four weeks, a team of 45 workers in gray smocks have been doing something here that hasn’t been attempted on a large scale in America for at least four years. They’re making TVs.

The new assembly line is tucked inside a cavernous factory in this Detroit suburb that once made old-style tube televisions. Their first product: a 46-inch flat-screen model going on sale soon at Target stores for $499. The project is the unusual result of a partnership between a U.S. branding company and a Chinese producer and is as much about marketing a U.S.-made television as it is about a global shift in manufacturing costs.

“We think the economics favor this,” says Michael OShaughnessy, chief executive of Element Electronics Corp., the Eden Prairie, Minn., company that has sold Chinese-made televisions in the U.S. under its Element brand name for six years. To be sure, costs in China are going up as worker pay and other expenses, such as transportation, rise. Meanwhile, muted wage gains in the U.S. and fast productivity advances have reshaped many U.S. factories into tougher competitors.

A recent survey of large U.S.-based producers by the Boston Consulting Group found more than a third plan to or actively considering bringing work home from China. But Elements televisions also illustrate the limitations in restoring some types of production on U.S. soil. The only other domestically assembled televisions today come from a tiny California producer of waterproof models designed for use outdoors and there is virtually no domestic supply base for crucial parts, such as glass screens. The upshot: Virtually all the key parts needed to make a television today are imported.Few industries have fallen as hard as television manufacturing.

In the 1950s, there were some 150 domestic producers and with employment peaking at about 100,000 people in the 1960s. Then came the imports, first from Japan and later from other parts of Asia. TV manufacturing in the U.S. went all but extinct in the last decade. Syntax-Brillian Corp., a Tempe, Ariz.-based, company opened a production facility in Ontario, Calif., in 2006 to much fanfare—but that operation lasted only two years.

Flat screens tipped the scales even more in favor of the Far East, because as tube televisions grew bigger, the weight and size of the glass made shipping increasingly costly. That was the one thing that kept U.S. production going even in the face of imports. Flat screens, however, are a fraction of the weight and much more compact. Element says the decision to produce in Detroit hinges on savings they gained by avoiding the roughly 5% duty on imported televisions and the reduced cost of shipping final products from the heartland of the U.S. to retailers. All the parts are initially being imported—which is one reason the products can only be marketed as “U.S. assembled. “Mr. OShaughnessy estimates the average savings on duties is about $27 for a 46-inch television—enough “to account for the increase in labor costs” in Detroit. The company declined to give more specifics, but noted that production methods in the U.S. are streamlined, involving component assemblies that in China might be separate steps on the production line.

The first televisions being made for Target have 52 pieces and require 24 production steps, including testing and final packaging.Mickey Cho, chief operating officer of Tongfang-Global, the television-making arm of state-owned Tsinghua Tongfang Co., the Chinese partner, says Canton is only its first move toward what he calls global localization, making more products closer to where they are sold.”

via Detroits Wages Take on Chinas – WSJ.com.

Ironically, the US TVs are being made in CANTON, Michigan!

Posted in China alert, Economics, Reverse off-shoring | 4 Comments »

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