Eyes are glued to TVs and news outlets everywhere. One of the biggest fights of all time is befalling and everyone has a stake in it. Yet, this isn’t a match hosted by the UFC. This is a fight between two of the greatest economies of all time. One can imagine an announcer calling out to the audience as an irate Uncle Sam battles an angry panda, just as so many political cartoons have depicted. However, no gloves with the words “tariffs” or “duties” are being used here. Instead, these two giants are making waves throughout the Global economy with decisions that will impact the livelihoods of billions of people. However, there is one country that both of these super powers are turning to pull them up from the damage of the trade war: India.
An Economy that Can Compete
India’s economy has been quietly chugging along while the two superpowers compete. As this is being written, India currently has the World’s fastest growing economy for large nations with a GDP growth of 7.3% that is expected to rise within the next two years, as stated by the World Bank’s official site. As China’s middle class grows and tariffs increase, many business people see India as a ripe place for business. India’s response? Bring it on.
India has already been seen making hefty investments in up-and-coming industries like AI, automation, and robotics. A CNN report focusing in on the development of robotics and AI in India displayed autonomous vehicles in labs and parking lots, complete with ambitious young entrepreneurs enthusiastically declaring their faith in their products’ success as the Indian economy continues to grow.
As India’s economy grows, so have the number of high-tech industrial plants and ports.
It’s not just the investors that are optimistic, however. A Financial Times interview with Anand Mahindra, one of Fortune Magazine’s Top 5 most powerful business people, exhibited the businessman’s enthusiasm for the growing economy and his expectations for India’s future. Mahindra expressed that the “nature of manufacturing has changed… lots more embedded IT tech.” More information technology being produced in India could mean that supply chains within the country will flow more smoothly as this technology finds more uses within the market. …
Following up on the trade talks between USA, Canada and Mexico to renegotiate what was NAFTA, President Donald Trump recently reported that Canada will be joining the renewed agreement previously reached with Mexico (now called USMCA). This was completed after several trade talks and rounds of negotiation in regards to key chapters of the so-called deal about main issues such as intellectual property, digital commerce, agriculture, and automobiles, among other topics.
Tensions begin to calm.. with a deal
Before this, there was some tension and discussion towards what could happen with Canada if they could not meet American demands or fairly negotiate auto-tariffs in particular according to the New York Times. Although the Canadian nation did not refuse to continue bargaining, Prime Minister Justin Trudeau managed to firmly state they could not guarantee they have ceded to all US requests.
Now, according to Morning Star the new deal will mainly impact the automobiles industry. “A new rule stipulates that at least 40-45% of a car must be made by workers earning at least $16 an hour. That’s more than five times the amount Mexican auto sector workers currently earn.” Also, the United States will have access to the Canadian dairy market, which they have struggled for many years.
The shift from NAFTA to USMCA will affect significantly the Auto Industry. Now is the time for auto manufacturers and auto part makers to strategize how their organisations can optimise their position within a newly framed North American auto industry.
In addition, all parties involved will have to sign the agreement before the year ends and have expressed they feel comfortable and benefited, especially the US as “both Canada and Mexico are its largest single country export markets”, as stated by Edward Park, investment director at Brooks Macdonald.
China’s influence
But where do Chinese goods stand in all of this? As the known commercial war between USA and China around the tariffs that Trump has placed over Chinese merchandise has certainly cause some uncertainty as they are both the most powerful countries in the world, some specialists and economists have pointed we will be able to see further moves until President Xi Jinping visits Trump in upcoming weeks. Others do mention as well that if the American President “gains traction in signing US friendly trade deals it is likely to solidify the harder line that the administration is adopting with China.”
President Trump and Chinese President Xi Jinping are looking more likely to meet late next month at the Group of 20 summit in Buenos Aires to discuss their escalating trade dispute.
Moreover now that Mexican President Peña Nieto is finishing his term and AMLO’s new administration is about to take over the Mexican nation, it is crucial that all advances over the past months finalize for the Americans. Some experts also have mentioned this new government figure of what AMLO represents and is looking for China to increase business and have more influence over Latin America. This is because AMLO’s interests and policies could be alike to some of China’s and may put at risk Trump’s plans.
As the bell rings to mark the end of the 2nd round of the bout between the United States and China, there are still no real insights into the fighters’ respective strategies nor which is going to be able to outmaneuver the other. The crowd is understandably nervous about the reverberations of both the fight and the outcome and its impact upon them.Talks concerning the trade pact ended in 2015, but according to Vietnam’s Minister of Industry Tran Tuan Anh, it took longer than normal to finalize the specifics of the deal because the European Court of Justice wanted to ensure investment protection by enacting a separate Investment Protection Agreement (IPA).
Statistics
China, with its 1.34 billion people versus the United States’ meager 311 million people, remains the underdog because of the relative size of economies and trade deficit. In 2017, the GDP of the USA was $19.4 trillion versus China’s GDP of $12.2 trillion. In terms of trade, the USA has imported $529 billion on a rolling 12-month basis and China, in stark contrast, has imported $135 billion over the same period. Therefore, there is no doubt that the USA can certainly punch harder because of the levers that it can pull. Trump is relying upon this clout and it is playing out in the latest round of tariffs. On 17th September, Trump announced tariffs on 10% on over $200 billion of products that the USA imports, which come into effect on 24th September and will increase to 25% at a later date. In response, China has said that they are going to impose a tariff on $60 billion dollars of 5% or 10% depending upon the category.
After this round, Trump still has another $267 billion dollars of imported products upon which tariffs can be applied. China has no additional products and can only increase the rates on existing products should it feel the need. Does this mean that America is about to land the knockout punch? Is there any leverage that the Chinese have? From reading the majority of the opinions and newspapers, there is certainly a growing consensus that believes China is backed into the corner.
Float like a butterfly
However, this underestimates China’s ability to box clever and effectively. Ms. Lovely, a professor of economics and trade with China, makes a compelling case that maybe, just maybe, China can outmaneuver Trumps aggression and strength should this fight continue for many more rounds. Her argument centers on the fact that:
a. many factories in China are foreign-owned;
b. China only adds a % of value to the supply chain;
c. China is, critically, thinking strategically.
For a start, she points out that 60% of China’s exports to the United States are incredibly produced by foreign-owned factories in China. As a result, there is no short-term solution to the tariffs because it takes many years to close and move factories based upon the structural shift required and the capital expenditure that has already been exhausted to establish the facility in the first place.
While consumer electronic products were generally removed from the list, network and router items will be covered by the tariffs. But for Beijing, Trump administration’s actions are a threat not only in purely trade terms: one of its main target is the “Made in China 2025” initiative – China’s plan to achieve global dominance in key technologies.
Ms. Lovely highlights that in the largest export sector, computers and electronics, China only adds an average of 50% of the value, thereby reducing the nominal impact of the tariffs on China. Different sectors vary in terms of the added value but the argument is sound across many sectors and softens the blow to China (though it raises additional concerns for the global economy because of its interconnected nature).
Finally, China is clearly thinking strategically and is conscious of the context in which this fight is set. China has doubled down on its commitment to its supply chains to the rest of the world and is only putting tariffs in place in response to the United States that are designed to avoid impacting the foreign-owned factories and companies.
In contrast, Trump is isolating the United States and is, based upon the above, impacting U.S. companies with facilities in China and those purchasing from China. Add to that, his rural loyalists are suffering due to the impact in the competitiveness of their exports to China and consumers are already being hit with price increases across the board (e.g. Ms Lovely, points out the 16.7% increase upon washing machines relating to the 20% hike in tariffs that Trump originally imposed).
We would add to the above that should there be a reduction in products imported from China and a material impact upon the Chinese economy, which is a real threat to China because it relies upon the capital inflows, then the RMB is likely to devalue and counter, to some extent, the increase in tariffs to the USA. That said, we do not see the Chinese Government actively devaluing their currency significantly because that would exacerbate outflows of capital and might result in a series of devaluation of currencies by other countries. Li Keqiang confirmed in a speech to the World Economic Forum in Tianjin that, “a one-way depreciation will do more harm than good for China.”
“Market sentiment improved after Premier Li Keqiang pledged on Tuesday that China will not engage in competitive currency devaluation, a day after Beijing and Washington plunged deeper into a trade war with more tit-for-tat tariffs.” (Reuters)
And the Winner is…
We all know that tariffs economically make no sense; they operate as a drag on GDP, are essentially a tax on the consumer and are counter to any free market analysis and, ironically in this case, the republican ideology. Whilst it is accepted not to be a major economic cause by most economists, the Smoot-Hawley legislation enacted by Congress in 1930 was certainly a contributing factor to the Great Depression. As a result of the above, the growing groundswell of lobbyists in Washington DC will continue to increase the pressure upon the administration. With the midterm elections in November, this is an administration that is going to be much more sensitive to these voices than the Chinese Communist Party in its own country.
The problem for all parties with supply chains from or through China is that we have no credible insight into the United States’ strategy. We have an unpredictable fighter in Donald Trump from whom we cannot make real assessment other than running through the various hypotheticals. We really do not know if this is an attempt to push China to address some of the clear violations of its intellectual property practices in the short term or an attempt to reduce the interdependence of the Chinese and American economies over the longer term.
At least over the next couple of years, this lack of certainty will undermine any true structural shift in supply chains from China until people are able to make a better assessment of the underlying strategy and long-term goals.
With an increased understanding of the cost of quality and other production metrics and efficiency, cost is no longer the only metric upon which our clients make strategic sourcing decisions, which is representative of the “Near Far Sourcing” strategy that we see in the market place. We typically do not see clients switch factories without seeing a significant reduction in cost of somewhere between 10% to 15% to outweigh not only production efficiencies, quality but also internal processes and the cost of making changes and developing trust and relationships.
We continue to work with our clients to explore additional opportunities from India, Vietnam and other jurisdictions in which we operate but, we would do the same without the potential of a full-blown trade war playing out because all of our clients are better positioned knowing the sourcing landscape in which they operate. We believe that we need to see more of the fight to determine the outcome and a longer-term strategy for our clients’ supply chain.
Millennials. A term which has sent shudders down more than a few backs. They are known for being socially and environmentally conscious which affects what they buy and from whom. However, many companies are quick to brush off Millennials’ consumer habits, as something which will pass, thus putting off change and progression and in doing so only hastening their demise. What these companies have evidently not considered is that Millennials (in America) will soon surpass the previous largest generation becoming the largest sector of the market as a whole. According to the Pew Research Centerby the year 2019, Millennials (in the United States) are expected to surpass Baby Boomers and become the largest part of the population in the America.
According to a Viacom study there are 2.5 billion millennials (19-36 yr olds) worldwide. Photo credits: State Farm
Millennials major concerns are social and environmental justice and price of their goods. In the world today it has become very important for companies to offer products that are customizable, cheap, sustainable, and quick produce. This makes it crucial for companies to adjust and meet the new market demands.
One of the best ways to meet the shifting manufacturing demands is to use a relatively cheap but developed industrial base. A possible solution to this could be an increase in the outsourcing of manufacturing to China. This is beneficial to companies in a number of ways and solves many of the challenges caused by this consumer majority.
The Social Cost of Production
First, sourcing from China is an option which will fulfill the Millennial need for conscious consumerism. Millennials desire to buy goods from companies that are sustainable and fair. One of the major social demands that millennial consumers have is that workers are treated fair and paid a livable wage.
In the past decade, Chinese factory workers have experienced increases in their hourly wages. Currently, there are rising wages and improvements to conditions in Chinese factories. For example, according to CNBC, in 2017 Sri Lanka’s average hourly wages were just 50 cents (USD) to China’s $3.60 (USD). To compound this, it also means that China’s hourly wages are more than 5 times that of India, and that its wages are more on par with countries like Portugal and South Africa . Also, some factories have introduced counseling programs and extracurricular activities, both of which will improve the standard of living for their worker.
Environmental Concerns
Another area that Millennials place a lot of concern is a companies impact on the environment. Millennials wants businesses to be conscious of their carbon footprint and to work with a certain degree of corporate-social responsibility.
This creates a challenge. Certain companies like Nike, might have pro-environment policies and take efforts to protect the environment, but certain manufacturers that are being sourced might not. In 2011 Greenpeace did an investigation at one of the factories that supplies Nike. What Greenpeace found was that this factory was dumping hormone altering pollutants left over from various manufacturing products into the water. Despite the fact that Nike may not have been using this facet of the company (Nike claims it was not) this displeased Greenpeace and they called for Nike and many other fashion industry leaders to clean up their acts (literally). Due to even the threat of a boycott like in the 90s, Nike fairly quickly proposed a plan to be more environmentally friendly by the year 2020. That perfectly demonstrates the power that consumers now have over companies; and this strong willed attitude concerning ethical and environmental actions of the company is only likely to increase.
Therefore, it is more important than ever to comply with consumer demands lest one fall victim to the Millennial industry killing machine for a perfectly preventable reason. Not only that, but the government of China itself has been putting restrictions on pollution. According to The Diplomat, in 2017 China penalized over 30,000 companies and more than 5,700 officials, and plans to continue these biennial inspections as part of their dedication to their new stricter laws and regulations concerning the environment and its protection. Chinese President Xi Jinping can be quoted saying, “The damage that humanity does to nature will ultimately harm humanity itself – this is an unavoidable rule”. This really seems to illustrate China’s new dedication to environmental reform, something Millennials are, and will continue to be, pleased with.
Cost and Efficiency of Chinese Manufacturing
This leads to the second reason why China can serve as the factory for Millennials, cost and efficiency. Sourcing from China will help the company provide inexpensive goods that they can distribute quickly and efficiently. Speed and accuracy are crucial, as reports have shown that Millennials despise when an order comes late and/or is incorrect with about 40% of them having this issue. According to Supply Chain Dive, they dislike it so strongly that it is likely that they will abandon their shopping cart on a website and go elsewhere. When it comes to speed specifically, 69% of the total population surveyed for one particular study would choose to go elsewhere if their order was late. If one then takes into account that it is more important to Millennials that their order be at their door quickly than previous generations (it was a main concern for this segment of the population when it came to reasons for being displeased by a delivery), then it is assured that this is not something that one can afford to ignore going forward. Therefore, it is extremely important that when procuring and shipping one makes sure it happens as quickly as possible with the accurate products. Based on this it would be prudent to source from China, as products will be inexpensive to import even with the tariffs that have been put in place.
According to Radial’s Consumer Study One-third of millennials frustrated by late deliveries
The challenges to delivering on demands by Millennial consumers is that certain demands are not always compatible with each other. For example, it is challenging for companies to meet strict regulations and also be able to provide the cheapest option for their products. One of the biggest challenges that Millennials and producers have to face is finding the balance between affordability and sustainability.
Millennials are and will continue to be a driving force in the economy for a long time. There is no point in burying one’s head in the sand and ignoring this fact. Therefore, now more than ever before it is imperative that companies listen to what this new generation of consumers wants. They want an ethical company – both environmentally and socially – as well as a company that can sell them an inexpensive product and efficiently get them their order. Finding the balance between these characteristics is centripetal to the future development of businesses and producers.
“Made in China” used to mean cheap, low-quality, mass produced goods. However, in today’s world things are changing and this is no longer the case. Thanks to the rapid industrial growth, wage increases, and government policy in China during the past decades, “Made in China” is taking on a new meaning.
Manufacturing in China is maturing and with this comes an increase in the quality of goods and the wages of workers. From 2011 to 2016, the average hourly wage of a factory worker in China rose by 64 percent making it $3.60. According to a report by CNBC, this puts the country’s average manufacturing wage more than five times that of India, and almost parallel with Portugal.
What do these higher wages mean for producers? The increase in wages makes the cost of manufacturing rise, it makes factory jobs more alluring, and workers require more skills to fill those jobs. All this leads to higher quality goods and a more expensive assembly process.
Made in China 2025
This shift is in part due to market forces, but it also comes from a government policy called the “Made in China 2025” initiative. The plan is meant to move China up the value chain in its manufacturing sector and incorporate modern technology into production. This would increase China’s industry standards, and also combat the issues associated with wage increases.
“Made in China 2025” is China’s way of upgrading its manufacturing sector in order to remain competitive and take it to the next level. It directly mirrors Germany’s “Industry 4.0” and seeks to make use of AI, robots, and the Internet of Things. China must make the transition from low-cost producer to an advanced industrialized economy or else it will be caught in a middle ground between emerging markets and the established high-tech manufacturing hubs of the world.
Currently, China relies on foreign technology for high-tech manufacturing to occur. However, the plan is for Chinese manufacturing to focus on the production and implementation of robots into the supply chain. By developing an independent high-tech sector, China will be able to make the leap from light, low-tech industry to a global leader in high-tech, high quality manufacturing.
The “Made in China 2025” plan sets out to innovate upon ten key sectors of industry and add robots to the manufacturing process. The ten industries include: 1) New advanced information technology; 2) Automated machine tools & robotics; 3) Aerospace and aeronautical equipment; 4) Maritime equipment and high-tech shipping; 5) Modern rail transport equipment; 6) New-energy vehicles and equipment; 7) Power equipment; 8) Agricultural equipment; 9) New materials; and 10) Biopharma and advanced medical products.
Recent developments in the global economy show China’s commitment to upgrading these sectors. In July 2018, BMW has worked out a deal with its Chinese partner, Brilliance Automotive, to expand their manufacturing operations in China, specifically focusing on electric cars.
Robotics and new technologies
According to the International Federation of Robotics, China has increased from 25 robots per 10,000 workers in 2013, to 68 per 10,000 workers in 2016, and this trend continues to grow. The implementation of robots will seek to keep productions costs low and stable, as the robots will do tedious jobs that take up a lot of time in the production process. Companies like Foxconn are leading the way, with their goal to have 30 percent automation by 2020. This focus on innovation will encourage development of automation and alternative production line strategies, which will make Chinese manufacturing more dynamic.
Although robots and automation provide many benefits there is a risk associated with job security if the development is left unregulated. The World Bank estimates that automation could threaten 77 percent of Chinese jobs, but the government and policy makers are trying to work around this. By 2020, the Chinese Ministry of Education plans to enroll 23.5 million students into a vocational program that teaches them how to operate within the new economy. By preparing the population for the economic shift, China seeks to ensure the livelihoods of the population and the safety of their jobs. If the shift away from light industry can be done smoothly, then fewer jobs will be at risk because the current state of robotics technology is not advanced enough to perform multiple general tasks, but rather it focuses on specific, small tasks – the type that work in light industry and low-tech manufacturing.
“Made in China 2025” is all part of an ongoing, market oriented trend that is reshaping Chinese manufacturing and production. The changes that will come with the new high-tech industry will increase China’s production value, and increase the levels of innovation within the manufacturing sector. This will attract new types of investment, improve the consumption and production standards in China, and increase global competition in high-tech sectors.
The European-Vietnam Free Trade Agreement (EVFTA) is expected to be signed in the later months of 2018. Talks concerning the trade pact ended in 2015, but according to Vietnam’s Minister of Industry Tran Tuan Anh, it took longer than normal to finalize the specifics of the deal because the European Court of Justice wanted to ensure investment protection by enacting a separate Investment Protection Agreement (IPA). As of July 2018, The EU and Vietnam have concluded the legal review, and now they await the signing and implementation of the deal.
The European Parliament describes the FTA signed with Vietnam as the most ambitious trade deal signed between the EU and a developing country. This deal will eliminate 99% of customs duties on products, it will open up the Vietnamese market to European investment, and the European Commission estimates that the agreement could increase Vietnam’s booming economy by 15% of its GDP. The impacts of this could include furthering European-Southeast Asian trade, improving Vietnam’s manufacturing and consumption standards, and supplying European companies such as Adidas and Audi with a cheap and reliable manufacturing market. The agreement has been met, but it will take some time before the effects of it are felt because it must be signed and ratified by the EU and its 28 member states.
Europe will eliminate tariffs placed on farm produce, sugar, honey, seafood, processed agricultural products, garments, textiles, footwear, and auto industry imports from Vietnam. This reduction in customs duties is expected to increase Vietnamese exports to Europe by 4-6%, and it will bring European investment into finance, automobile manufacturing, information technology, and high-tech agricultural products. The impact of this would be a diversification of Vietnam’s economy, provide a path to more sustainable economic growth, and it would help alleviate poverty.
The EVFTA will liberalize trade between the EU and Vietnam. Vietnamese exports such as fish, agricultural products, furniture, apparel, and footwear will enjoy no customs tax when being imported into the EU. Exports from Europe that will experience similar benefits are alcohol, automobiles, pharmaceuticals, and information technology.
At the beginning of the FTA talks in 2015 only 42% of Vietnam’s exports into the EU enjoyed a zero tax rate. These zero tax products were usually light industry and low-tech goods, and got this benefit because of the EU’s Generalized Scheme of Preferences (GSP), which seeks to aid developing markets by offering tax reductions. As Vietnam’s economy develops and matures the GSP will no longer be applied, so there is a need for a new system – the EVFTA. This agreement should continue the trend that is shown in the graph below of the gradual increase from 2005 to 2015 in trade between the two parties from.
Vietnam imports from EU have kindly increased for the last decade while its exports have greatly increased, still toward the 28 countries members of EU. Also, EU was the third main FDI partners of Vietnam in 2015 after ASEAN and Korea. Within the EU, the main partners with Vietnam in FDI were France, Germany, Netherlands and UK.
Highlights of the EVFTA
Through the EVFTA, the EU will liberalize 71% of its import from Vietnam starting on day one, and 99% will enter duty-free after seven years. Custom duties will be removed over a transitional period so that domestic producers can gradually adapt. Consumers from both sides will benefit from lower prices and exporters from strengthened competitiveness.
The main goal of the FTA is to facilitate exports between Vietnam and EU, many actions will be taken to achieve that goal; here are a few examples:
• Administrative fees and formalities reduced for more direct real-world trade facilitations
• Eliminate all export duties, except for a few tariff lines (TL)
• Lighter import and export licensing procedures
• No import and export restrictions allowed by both parties
A win-win situation
The FTA also represents an opportunity to increase EU exports into Vietnam for very specific and important industries that will both boost the EU economies and improve consuming standards of Vietnamese people. Cars, pharmaceutical products, alcoholic beverages will see specific trade facilitations for exports to Vietnam. It is expected that in the ten years after the passing of the deal, tariffs on European beverages being imported into Vietnam will be eliminated. This will serve to benefit many European enterprise associations and firms such as spiritsEurope, the Scotch Whisky Association (SWA), and France’s Pernod Ricard, and the Vietnamese consumers. Currently, only 19 percent of alcoholic beverages in Vietnam come from imports.
Many European companies such as, Adidas, Puma, and Daimler (Mercedes Benz) are already building additional manufacturing sites in Vietnam to take advantage of its good quality and cheap workforce, its resources. The EVTFA will increase the number of European factories and boost investments into Vietnam.
Although Vietnam has agreed to all the aspects of the FTA and IPA, there is still a ways to go for the country to be able to follow the regulations set out. In order to assist with the development of Vietnam’s legal and economic capacity, Miriam Garcia Ferrer, Head of Economics and Trade Section of the EU’s Delegation to Vietnam gave several recommendations. She emphasized the need for Vietnam to develop more mature manufacturing industries in order to promote sustainable economic growth. She also pledges Europe’s support in developing new economic sectors in the developing country. This will be accomplished because more European businesses are being attracted to Vietnam and they are bringing technology, knowledge, and expertise in certain fields.
The EVFTA will usher in an era of trade between Vietnam and Europe like never before. The new opportunities will be great, but there will also be challenges associated with doing business in a new part of the world at such high volumes. It will be centripetal that companies seeking to do business work with established businesses to find proper manufacturing links.
With eighteen years of experience in China, and ten years of experience in Vietnam, ET2C International has an extensive knowledge of the local supply-chains and manufacturing sectors in both of these countries. This trade deal presents great opportunities to companies and ET2C is committed to using our knowledge of the markets, supply-chains, and sourcing to provide benefits to all the parties involved.
Retail has and is evolving. The interaction between the consumer and the Brand has become closer. The consumer is now exposed to an array of multi-channel advertising, ‘likes’ and other targeted media advertising. It is therefore no longer good enough just to be selling a product at the right price. With all this choice, broadly the consumer now wants an in depth understanding of the Brand’s ethos – what they stand for – and how this is integrated into the product that they receive in the post the day after pressing ‘add to cart’ on the chosen company’s website.
Increasingly, one aspect of this new ‘under the hood’ perspective focuses on ‘Sustainability’ and ‘Environmental Footprint’. This appears to have been born out of the emergence of the Millennial as a consumer force the world over. This is an age group between 16-36 and it is estimated that there are 2.5 billion of them globally. Due to the widespread adoption of technology, they make purchase decisions that are more engaged and complex. There is an expectation that products can be ordered at a touch of a button, shipped (of course for free within domestic markets) direct to their home and if they do not really like the product, they can return (and again without actually paying for the return shipping). At the same time, they want to make sure that the products are manufactured in a sustainable way, are environmentally friendly (using recycled ocean plastic, or organic yarn, or packaged in natural sea-grass fibres) and still meet any functional or design needs.
63% of millennials want their employer to donate to social or ethical causes that they value. Source: Brookings.edu
There is nothing wrong with wanting sustainable products. There is nothing untoward with wanting a good environmental footprint. There is nothing incorrect with wanting Asian factory workers to be treated well by the factories who employ them. That is all commendable. In most people’s Utopia, sustainability and protection of the environment would be a given. There would be no waste, period. However, are these demands realistic?
Consumer Brands are, and have been scrambling, to promote sustainability and are increasingly providing full transparency across all their global factories whether wholly owned or third party. Pictures of the factories and the individuals who made the products are more and more commonly adorning the sustainability pages of a Brand’s website. Some companies are even moving to give consumers the choice at the point of purchase which country and factory they want to buy from. It is becoming an integral part of the decision-making process whether to buy a dress or some jeans from China or Sri Lanka. This all costs money, and some will argue money well spent.
For a Brand to properly implement a sustainability strategy it must be an innate part of their core strategy.
There is one issue that is prevalent in a lot of the conversations we have had over the past year with retailers and Brands. For all their good intentions (and they are good), the notion of the ‘sustainable Consumer’ is in fact oxymoronic. It is a contradiction. The issue that is consistently raised is that the consumer does not want to pay any more for this level of sustainability. It is a ‘given’. A part of the price they have always paid for the product, and if it is not, well, they will move to put their money in another Brand’s coffers.
For a Brand to properly implement a sustainability strategy it must be an innate part of their core strategy. They need to live and breathe it and this needs to infiltrate down through their manufacturing partners to the very product make-up. There are therefore concessions to make that will and have to cost money. The recycled pulp shoebox will cost more than the traditional version, and it will not visually look as nice, and you will not be able to use the same print but it is more sustainable, as an example.
Adidas recently revealed it has sold more than one million pairs of sneakers made from ocean plastic with its partnership with Parley. Photo Credits: designmilk
In order for the Brands to properly implement sustainability as a core strategy, the consumer must be willing to pay a little bit more. This is particularly true of emerging brands who do not have the margins or cash reserves of their established multinational competition. Key to this point is that the monies have to likewise filter down to the manufacturers and their sub-suppliers and in certain circumstances the salaries paid to the workers themselves. There is no point in requesting gold when you only are willing to pay for brass.
Sustainability starts with a decision by the consumer. They need to be prepared to pay more to ensure that it becomes an innate part of any Brand’s strategy and the investment is strategically harnessed in a way that empowers the supply chain to really innovate and deliver true sustainability.
The Trump era is an antechamber full of tension and pressure in which the renegotiation rounds of the NAFTA agreement are taking place, which began last summer. In this context, the growing uncertainty regarding what will happen after the renegotiation of the agreement is on the rise and could drastically affect the growth of the Mexican economy if a good negotiation does not materialize.
This is mainly due to two factors: on the one hand, the great economic dependence on our next-door neighbor, and on the other the high degree of competitiveness and growing demand of international markets, since the internationalization process that began in Mexico more than 25 years ago, has raised the standards of commercial competition at an international level.
Mexico’s economic dependence with the United States
The relationship between the United States and Mexico, is one of the most important in the world, with a trade in goods and services that exceeds half a billion dollars annually.
In order to understand the complexity of this negotiation process, it is necessary to recognize the great importance of the economic relationship between the United States and Mexico, besides being the first commercial partner for Mexico, this relationship is one of the most important in the world, with a trade in goods and services that exceeds half a billion dollars annually. To better identify this phenomenon there are two circumstances: the number of jobs that this commercial flow produces, and the growth of the automotive manufacturing industry.
Speaking of employment, 80% of Mexican manufacturing exports are sent to the United States according to CNN and 1.5 million dollars in goods cross the borders of these countries daily. This data shows that this commercial activity encourages the continued existence of job opportunities related to everyone that converges in manufacturing, which encompass producers, large industries, marketers, logistic companies, transports, customs and more.
But perhaps the most important entry of this activity is the high percentage of exports in the automotive industry because almost half of what is sold to the United States are automobiles. If the agreement that supports the free trade area with this nation breaks down, this industry could be one of the most affected, since tariffs would increase the cost of cars to export. Another scenario that can be seen at the same time are high production costs, since also some of the inputs or auto parts of various models and brands of cars are imported to Mexico to assemble and finish the car in the national territory. That is why this framework would represent a great disadvantage for our country and could take more than one, out of the market.
Scenarios for the renegotiation
The NAFTA outcomes carry a global impact.
Based on the 7 rounds carried out by the three members of the treaty, the Mexican delegation has expressed that it is possible to talk about 3 possible scenarios. The first one would be that in the case that the objective of modernizing and renegotiating key aspects within NAFTA materializes, since it has not had a constant update, the pertinent modifications would come into force at the beginning of 2019.
The consequences or possible positive effects of this scenario that is postulated as the most probable would practically be reflected until next year, taking into account that the electoral period can slow the process. All this will depend equally on other factors such as the new presidency of the Bank of Mexico, the exchange rate of the peso against the dollar, and inflation, so that the “new” preferences and commercial benefits cannot be made immediately.
“El Banco de Mexico”, Photo Credits: Octavio Alonso Maya
A second scenario is the possible termination of the treaty, mainly by the United States and led by Donald Trump. In this case, a complaint letter has to be submitted and 6 months later the USA would be out of the agreement. Then trade with Canada and Mexico would be governed by the provisions of the World Trade Organization, applying the clause of the Most Favored Nation.
If this happens, there are many doubts and opinions about what Mexico could do with its 80% of exports. If the US is no longer an option, then where? This is where the great challenge lies, since although for a period of time the economy will contract very hard, diversification and the urgent search for new markets is essential. It is a matter of obliging both the Mexican businessmen and the world in general, to adapt to new circumstances and to depend less and less on certain sectors.
The third possible scenario, then, would be a “non-exhaustive” negotiation, in which minor issues are modified and dealt with; emphasizing rules of origin and keeping aside all the other chapters on the agreement that have been a discussion topic in the 3 political agendas. In the latter case, there would not really be a before and after the negotiation rounds, since it is not the objective of any of the negotiators that this scenario becomes a reality. All parties would remain strong in their own sectors and as for numbers; only the demand for seasonal products such as perishables could increase.
Taking into account all reflections and conclusions of experts and participants of these rounds is where the questions arise from the business associations and members of various committees. It could be said then that this long and uncertain process of renegotiation, attracts great business opportunities, regional products, transport networks (land, sea, and air), a prevailing technological update and physical improvement of the Mexican border’s infrastructure, among others. In the end, the fact is that there is a long way to go and it can all be done by the three North American nations.
Robotics and new technologies
