Sourcing/Procurement Trends
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U.S. Seen Emerging as Low-cost Country
Weak dollar is opportunity for European businesses, BrainNet believes; lower labor costs, good infrastructure can tip scale in favor of U.S. market
Bonn, Germany — March 26, 2008 — The continuing weak performance of the U.S. economy is straining economic expectations around the world. However, the weak dollar has another, positive side as the United States becomes an attractive procurement prospect for European companies, according to a German supply chain consulting firm.
Consultancy BrainNet, based in Bonn, notes that the serious implications for European exporters caused by the decline of the U.S. dollar and the looming American recession have been dominating the headlines for weeks. But there is one consolation: the increased use of the NAFTA area as a procurement market.
Head West
Until recently European companies, like their U.S. counterparts, have tended to look to the East in the search for low-cost procurement regions. China, India and Eastern Europe all offer enticingly low prices for products and services, mainly as the result of low labor costs.
However, the continuing low exchange rate for the dollar is encouraging many to look across the Atlantic. This is especially true of industry sectors that are heavily dependent on exports to the dollar area, such as the automotive industry, the aircraft industry and machine construction. A currency-related fall in revenue could be at least partly offset by shifting more procurement to the dollar area, according to BrainNet.
The consultancy suggests that this form of "natural hedging" offers significant cost benefits compared with financial hedging. "The U.S. economic crisis goes too deep for us in Europe to fully absorb the impact through procurement," says Lars Immerthal, an expert in financial supply management at BrainNet. "But that's precisely why businesses need to pull out all the stops in order to stay competitive. The directors of European companies should urge their procurement departments to expand procurement activities into the dollar area."
Consultancy BrainNet, based in Bonn, notes that the serious implications for European exporters caused by the decline of the U.S. dollar and the looming American recession have been dominating the headlines for weeks. But there is one consolation: the increased use of the NAFTA area as a procurement market.
Head West
Until recently European companies, like their U.S. counterparts, have tended to look to the East in the search for low-cost procurement regions. China, India and Eastern Europe all offer enticingly low prices for products and services, mainly as the result of low labor costs.
However, the continuing low exchange rate for the dollar is encouraging many to look across the Atlantic. This is especially true of industry sectors that are heavily dependent on exports to the dollar area, such as the automotive industry, the aircraft industry and machine construction. A currency-related fall in revenue could be at least partly offset by shifting more procurement to the dollar area, according to BrainNet.
The consultancy suggests that this form of "natural hedging" offers significant cost benefits compared with financial hedging. "The U.S. economic crisis goes too deep for us in Europe to fully absorb the impact through procurement," says Lars Immerthal, an expert in financial supply management at BrainNet. "But that's precisely why businesses need to pull out all the stops in order to stay competitive. The directors of European companies should urge their procurement departments to expand procurement activities into the dollar area."
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