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31 May 2013

Reshaping the business map

Adrian Rigby

by Adrian Rigby

Global Deputy Head of Trade and Receivables Finance, HSBC

Cargo loading at Beijing Capital Airport

Patterns of trade are changing with the search for increased efficiency

The ongoing financial weakness in Europe and the US is redrawing the global trade map. In April, the World Trade Organization (WTO) cut its 2013 global trade growth forecast from 4.5 per cent to 3.3 per cent. That followed anaemic growth of 2 per cent in 2012, the lowest reading since the depths of the financial crisis in 2009.

When exports were growing at a rapid pace, manufacturers could afford some slack in their supply chains. Now that trading conditions have become tougher, however, the need to maximise profitability has increased. Supply chains have become more complex than they were even five years ago. The components that make up an iPhone, for example, come from many countries. Even something as simple as a soft drink sold in China might involve packaging supplies from India, sugar from Thailand, and flavourings from the US.

Emerging markets such as China, which were known as centres of manufacturing, are becoming destinations for Western exports

The search for increased efficiency has prompted a re-examination of the supply process, examining all aspects of the chain to understand where costs are accruing. Manufacturers are cleaning up balance sheets, shifting inventory, cutting out unnecessary steps in logistics handling, and negotiating contracts between suppliers further down the chain. They are also looking for greater efficiency in their supply chain financing.

Supply chains must be robust but also flexible enough to respond to opportunities presented by new trade corridors. For the remainder of this decade we expect a dual-speed rebound in global trade, led by growth along South-South corridors linking Latin America, Africa and Asia until the developed North regains momentum from 2015.

In HSBC’s latest “Global Connections” study of 23 economies, we forecast growth in merchandise exports for all Asian countries, apart from Japan, through to 2030, led by bilateral trade between India, China and Vietnam. Prospects vary in Europe, where we’re most upbeat about eastern economies such as Turkey and Poland that are building trade corridors to Asia. In the Americas we expect exports to prove most dynamic in Mexico over the near term, with growth averaging 8 per cent a year to 2020.

Although we’re forecasting 6 per cent annual export growth for the US and Canada through 2015, we anticipate that pace will pick up towards the end of the decade as traditional trade partners in the developed world begin an economic recovery. We’re forecasting strong growth in US trade with India and China as incomes rise, feeding demand for US-made merchandise from consumer goods to specialist technology and pharmaceutical products.

It’s a signal that emerging markets such as China, once known primarily as centres of manufacturing, are becoming vital destinations for Western exports.

Patterns of trade are changing and few companies can afford to be complacent in one of the greatest structural shifts of international business for a generation.

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