“Manufacturing is starting to move back to the west,” states Pippa Malmgren of the Canonbury Group with great confidence. Speaking to the CFA Institute a few weeks ago from the beautiful Usher Hall in Edinburgh, Scotland, she commented that you’re seeing events like the Chinese taking a position in Volvo. Or you’re seeing international investment in farmland in Australia. “International markets respond amazingly quickly to change in price pressures, and the change has started. Huge amounts of capital are starting to flow in the opposite direction.”
A similar sign of change. Malmgren believes that revolutions and political disruption don't occur in a vacuum--and they have global economic impact quickly. Take for instance the huge pressure on wages in the "Third World." “The cost of an onion in India has gone up 100% in the last year,” she says. “Sugar and cocao have gone up, so you see acquisition activity like Kraft and Cadbury,” she pointed out, as an indication that global inequalities are forcing mainstream companies to pay more for higher quality brands.
These subtle shifts support what may be a sea-change in the manufacturing sector. Several BVWire.com readers have commented that the 20+ year decline in textile prices has stopped, and in fact reversed. More than one retail CEO is predicting 5-10% increases in their cost of goods this year as global wage pressures in key producing countries like VietNam and Bangladesh, along with inflation in the BRIC and other countries, suggest that the imbalance in international manufacturing costs is beginning to diminish.
Malmgren’s thoughts on how to make sense of this: “don’t be fooled by top line growth. Sure, China is growing at 10%, but don’t forget inflation and the fact that their costs are going up faster.”
“And, don’t forget what happens to governments that can’t feed their people. This is not an issue that’s isolated to northern Africa,” she says.