In the past couple of weeks, there’s been an abrupt turn of events around the RMB, (from US pressure, and Chinese push-back) to a state where China appears ready to let the RMB rise. A recent Financial Times article shares some of the global currency and monetary implications that an appreciating RMB may bring. But what are the implications for global procurement organizations attempting to forecast Chinese competitiveness from a price perspective — or operating within China to supply the local market? There are a number, a few of which I’ll touch on below.
Let’s begin by looking at the scenario of a company that looks at China largely from an export sourcing perspective (i.e., they’re sourcing from China, rather than within or to China to supply the local market). For these companies, the impact of a rising RMB will largely depend on the amount of value-added activities going on within China (not to mention other select Asian countries, which some economists believe will also see their currencies rise as a result). If the portion of total cost attributed to raw material is a major component of a total cost breakdown, then chances are a rising RMB will have a less dramatic impact on price increases…
