Posts Tagged ‘emerging markets’

Caterpillar, Boeing Defy the Odds With Strong Sales

Monday, August 16th, 2010

Some companies are posting 90 percent growth.  One company that is holding its own despite the shaky economy is Peoria, IL-based Caterpillar, Inc., which reported an enviable quarterly profit thanks to growth in emerging markets.  The world’s largest manufacturer of construction and mining equipment is benefiting from growing mining and energy operations with orders outpacing shipments to dealers.  Additionally, Caterpillar plans to increase production during the second half of 2010 and has hired 3,650 new employees this year — 1,250 in the United States and 2,400 overseas.

Caterpillar, which laid off 30,000 employees globally from late 2008 through 2009, is being cautious, saying it still has “significant economic concerns.”  Eli Lustgarten, an economist with Longbow Research, notes that “Construction in developed countries is not doing well, particularly in the United States.”  Caterpillar is well aware that its second-quarter profit of $707 million was derived from sales which rose 116 percent in Latin America and 62 percent in the Asia/Pacific region.

Another company that is prospering is Boeing, which has delivered 191 Next Generation 737s so far this year, including 95 in the second quarter.  Chicago-based Boeing has delivered 222 airplanes in 2010.  Demand for single aisle planes comes not only from growth markets, but also for replacing older aircraft such as the 737 Classics, A320s, and McDonnell Douglas MD-80/90s.  The demand for single-aisle airplanes remained strong even during 2009, according to Boeing.  The growth of low-cost carriers, emerging intra-China demand, and a large need for replacement airplanes will keep the demand for single-aisle airplanes strong into the future.

“The world market is doing much better than last year, but there are still challenges,” said Randy Tinseth, vice president of marketing, Boeing Commercial Airplanes.  “Looking at 2010, we see a world economy that continues to recover.  We expect the world economy to grow above the long-term trend this year.  As a result, both passenger and cargo travel will grow this year.”

The China Syndrome

Tuesday, July 6th, 2010

The unwinding of global imbalances signals the end of China's unfair advantage.  As global financial disparities start to wind down, China is likely to end up a winner because emerging-market economies have a definite advantage rooted in the way the global economy functions. Writing in the McKinsey Quarterly, Lowell Bryan, a director with McKinsey & Company, notes that “Saber-rattling Western trade negotiators frequently focus their attention on the ‘unnaturally’ depressed exchange rate of countries such as China, and this is a component of the structural advantage to which I refer.  But its roots run far deeper – all the way down to the fundamental issue that labor can’t be freely traded on a single global market, while capital and commodities can.  Any company sourcing its production or service operations in a lower-wage emerging market-country therefore can save enormously on labor costs.”

China’s recent decision to relax the informal peg of its currency, the yuan, to the U.S. dollar proves that the world must come to grips with a set of economic relationships that are currently unsustainable.  According to Lowell, “Their unwinding will have serious long-term implications for those executives’ strategic priorities, including where they locate operations and what customers they serve in which markets.  Equally important is the need for preparedness in case the unwinding process is sudden and abrupt.  While we surely seem to be headed toward a new global equilibrium, the transition to that future may not be smooth and gradual.”

The cost of labor in China and India is less than one-third of what it is in developed nations.  Additionally, Chinese and Indian productivity are at extremely high levels and tend to be in highly specialized fields – high-tech assembly in China and software development in India.  To take advantage of the cost savings, many multinational firms are locating production facilities in emerging markets.