China, Economics and Spend Management

As I'm fond of talking about in presentations and speeches at conferences, I believe that it's critical for procurement executives to take a leadership role in tracking global financial and economic trends for their organizations. Whether it's from a global trade, risk management, or cost reduction perspective, this monitoring can begin by paying close attention to international economic headlines -- and forming an opinion and perspective on them. Recently, Morgan Stanley's Stephen Roach authored a perspective on China that all procurement and operations executives should read. In it, he begins, "China, the so-called factory of the world, has just produced its newest product—a global stock-market correction. The 9 percent plunge in the Chinese stock market late last month was a shot heard around the world."

According to Roach, China has a disproportionate impact on the world economy even for its size. This is due to the surging growth the country has observed in the past decade. Roach notes that in 2006, "China's surging economy accounted for about one third the total increase in world GDP. Moreover, during the past four years, China has been responsible for about 50 percent of the cumulative growth in economically sensitive commodities such as oil and a variety of base metals, like aluminum, copper, lead, nickel, steel, tin and zinc."

If the Chinese economic fire cools off as Roach is predicting -- and as the Chinese government is intentionally engineering -- then we'll see a ripple effect in North America and Europe that could reduce demand, impacting everything from commodity pricing to transportation capacity. Which is further proof why Spend Management learning is not just about staying up procurement and operations issues -- it's about staying abreast of economics, trade and finance. So if you only have time to read one periodical or blog, junk Spend Matters, Purchasing and the others. And pick up the Economist. You won't be sorry.

Jason Busch

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