Pinnacle Buzz Q2'15

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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



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



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.



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



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



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.



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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Pinnacle Buzz Q2'15

Documents

strategic sourcing

us costs

relative manufacturing

global exporters

manufacturing cost index

country us

quarter of global growth

global growth projections