Complexity rules for trade in 2004

11 December 2003
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11 December 2003

The shedding of jobs in a recovery, corporate ethics and the prickly problem of outsourcing could dominate next year's headlines, writes David Arminas

The UK's manufacturing sector is set for an impressive start to 2004, according to the latest purchasing managers' index (PMI) figures from CIPS and Reuters.

But statistics and data from other sources, such as the Engineering Employers' Federation, show that persistent problems contradict the positive indications. Despite a manufacturing recovery, 50,000 more engineering jobs will be lost in 2004, says the EEF (see News).

In other words, more work for manufacturing means fewer jobs, an equation that would have been confusing a decade ago. Purchasers will have to find effective ways of operating in these uncertain times, in which the old rules just don't hold water any more, according to Roy Ayliffe, professional practice director at CIPS.

Several issues have emerged this year and look likely to grow in importance in 2004.

A booming US economy is no guarantee that foreign suppliers, including British manufacturers, will have access to America's wealth. UK aviation defence contractor BAE Systems has just won a long battle to be allowed more access to what the US deems sensitive avionics data that its American clients wish to give it. At the lower end, the US government is threatening to slam steep duties on imported Chinese television sets.

In fact, there is concern about the US economy, says Mark Berrisford-Smith, senior economist at HSBC. "Growth is largely driven by tax cuts and there is a question mark over whether this will continue," he says.

The issue of what constitutes good ethical practice is hitting the headlines more often. Global drinks company Diageo's first corporate social responsibility report (see News) is an example of how companies need to show they are good corporate citizens. But the benchmarks are becoming more complex. The dispute in Scotland about Diageo's former single-malt whisky, Cardhu, is a case in point. Many distillers are concerned about damage to the sector's reputation if Diageo is allowed to call the drink a pure malt - a new name - instead of a blended whisky.

US aircraft maker Boeing this month sacked its chief financial officer, Mike Sears, for misconduct. He offered a job to a Pentagon procurement official while she was involved in assessing bids in which Boeing was a competitor, and later hired her. After this impropriety, the UK government is considering Boeing's position as a bidder for a major in-flight aircraft refuelling contract.

Purchasers will increasingly have to deal with the fallout of such impropriety, says John Sharp, a former purchaser with BT.

The exclusion of bidders from valuable contracts might be seen more often next year, says Sharp. One of his other hats is that of chief executive at the Business Continuity Institute, which promotes the highest standards of professional competence and commercial ethics in the promotion of business continuity management.

Outsourcing, especially of customer and IT services to Asia, is becoming a major political issue. Norwich Union's move last week to outsource 2,500 jobs to India was called "despicable" by the white-collar union Amicus, which vowed to fight it.

In the US, where some states are already outlawing foreign outsourcing, Texas-based computer firm Dell is to move part of its customer inquiries back to the US from India, the first such reversal for the subcontinent's booming outsourcing sector.

Purchasers must think harder about the customer services consequences of such outsourcing, says Norman Rose, director-general of the Business Services Association, a policy group representing major companies providing outsourced services.

"The Dell case shows that customer service issues will be more important than price considerations in 2004," he says. "But there will also be issues of security brought about by international events such as terrorism."

The invasion of Iraq was, say the US and the UK, carried out to make the world a safer place, but appears to have made it less so, particularly if you are a contractor working on reconstruction projects or scouting around for business in Iraq - several have been killed. In the UK, the Bank of England has urged City financial institutions to reassess their large services contracts to ensure against major terrorist attacks.

As the year closes, purchasers will be raising a glass to the improving economy but they must also be ready to reassess risk for the coming year.


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