Reply to: A liitle bit of good news on the UK economy.

[deano]

In a small way this has already been apparent, a colleague was looking to buy a camera from Amazon. They spent a little while thinking on it. Went back a few days later just to see the price had increased 25%.

I had exactly that experience! I looked at a little guitar multi-fx unit and amp simulator (the Korg PX4D) on Amazon and there was 1 in stock which was £74.99. It had sold out when I went to order it the next day. I looked a few days later to see if more stock had arrived and it had but it was priced at £99! That's a 33% increase in a few days. I'm still trying to figure that one out. Credit crunch, what credit crunch?

I'll wait until the sales start!

[expat]

I note that it was said back in 1967, and has been said many times since, that a devalued pound would help exports. In fact what has happened every time is that exporters have just sat back and taken the higher profit, rather than build more business. It's quicker and easier.

[Fred Bloggs]

There is a little factoid that misses most people. We don't even do much of the design any longer.

What happens is a company wants to make a new kettle, for example. They send their design team over a brief, they wanders around the trade shows, thumb through a few brochures, pick a few kettles. They try the kettles against the target customers, who pick one. (There's a great piece of software to help in this, and if you take a product from just about any company and feed it's details in you can see how pervasive its use is.) The company then sends their graphics over to china which are then put on the kettles, which are delivered direct to the stores.

Cripes, we are doomed then.

[BrilloPad]

"It does not mean that the pound here in Britain, in your pocket or purse or in your bank, has been devalued."

Harold Wilson, 1967

Maybe GB will start blaming the gnomes of Zurich?

[expat]

Not so. Your pound is worth as much as it was yesterday - just not against foreign currencies, which isn't a problem until you need to spend pounds overseas. Nows the time to hold onto your pounds until things improve - in fact invest your squids in the UK.

"It does not mean that the pound here in Britain, in your pocket or purse or in your bank, has been devalued."

Harold Wilson, 1967

[Purple Dalek]

I can see where you're coming from. I can see UK inflation heading north of 10% pa by 2011. The real shame is that the "high tech" sub assemblies are German or Italian. In the 1960's and 1970's they would definately have been British manufacture. My guess though is that in 10 years time the Chinese will take over the hardware manufacture anyway even if the design aspect stays in Europe for another 20 years yet.

There is a little factoid that misses most people. We don't even do much of the design any longer.

What happens is a company wants to make a new kettle, for example. They send their design team over a brief, they wanders around the trade shows, thumb through a few brochures, pick a few kettles. They try the kettles against the target customers, who pick one. (There's a great piece of software to help in this, and if you take a product from just about any company and feed it's details in you can see how pervasive its use is.) The company then sends their graphics over to china which are then put on the kettles, which are delivered direct to the stores.

[Fred Bloggs]

Yes, what you say is broadly correct, they can reduce their cut, still achieve the same profit, and be more competitive, but this is only a temporary effect until the wage pressure of their workers having to pay higher prices, forces them to increase prices. That the government is allowing the unemployment figures to rise, after so many years of inventing non-jobs, can be seen as an approach to discourage this.

I can see where you're coming from. I can see UK inflation heading north of 10% pa by 2011. The real shame is that the "high tech" sub assemblies are German or Italian. In the 1960's and 1970's they would definately have been British manufacture. My guess though is that in 10 years time the Chinese will take over the hardware manufacture anyway even if the design aspect stays in Europe for another 20 years yet.

[Purple Dalek]

Like the firm I mentioned. They buy sub assemblies from Germany and Italy in Euros. They engineer and package the final product in the UK and then ship it to France or Spain to their customers. I guess that if they're switched on to this then they'll have a Euro account so that the French/Spanish customers pay in Euros and the UK firm I'm talking about then pays their German/Italian supplier in Euro's, the net effect on them would be zero. But, since their "added value" and their profit is in £'s then their profit margin has increased allowing them to trim their Euro prices as the £ has sank. Hence they win a lot more work. I guess that's how it works???

Yes, what you say is broadly correct, they can reduce their cut, still achieve the same profit, and be more competitive, but this is only a temporary effect until the wage pressure of their workers having to pay higher prices, forces them to increase prices. That the government is allowing the unemployment figures to rise, after so many years of inventing non-jobs, can be seen as an approach to discourage this.

[Fred Bloggs]

Like the firm I mentioned. They buy sub assemblies from Germany and Italy in Euros. They engineer and package the final product in the UK and then ship it to France or Spain to their customers. I guess that if they're switched on to this then they'll have a Euro account so that the French/Spanish customers pay in Euros and the UK firm I'm talking about then pays their German/Italian supplier in Euro's, the net effect on them would be zero. But, since their "added value" and their profit is in £'s then their profit margin has increased allowing them to trim their Euro prices as the £ has sank. Hence they win a lot more work. I guess that's how it works???

[Purple Dalek]

Client Co. is a manufacturing company that sell all over the world. So it's good for them, although offset to some degree by the parts they import costing more.

Should be beneficial to Plan B Co. too.

Boomed!

Shame all the pounds being earned aren't worth anything.

Spot on there. In the long forgotten past, when the currency dropped, then imported 'raw materials' became more expensive, but this didn't matter too much as the value add of our manufacturing absorbed it. The problem this time is that many manufacturers import 'sub-assemblies', hence a component of the value add has to be paid for at an adverse exchange rate, hence the absorption of cost that occurred previously is no longer there as our value add is so much lower.

So, for a short while, (and quite short as many companies now practice JIT,) companies will be able to offer at a lower price, but when it comes time to restock their prices will have to increase, substantially.

In a small way this has already been apparent, a colleague was looking to buy a camera from Amazon. They spent a little while thinking on it. Went back a few days later just to see the price had increased 25%.

Remember it is different this time.

[Stan.goodvibes]

Shame all the pounds being earned aren't worth anything.

Not so. Your pound is worth as much as it was yesterday - just not against foreign currencies, which isn't a problem until you need to spend pounds overseas. Nows the time to hold onto your pounds until things improve - in fact invest your squids in the UK.

Living in an export-orientated country I can assure you a big drop in your currency is the best thing that can happen to you. Our NZ economy always picks up when the dollar goes low. It has the following benefits:-
1. exporters earn more
2. people will buy more UK-made products as they start to be competitively priced against foreign-made goods
3. people pay for services in the UK instead of abroad i.e. outsourcing to India does actually start to become less viable.

Of course raw materials from overseas are now costing you more, so firms have to be more efficient when manufacturing, but its a great time to invest in onshore mining and local technologies like wind farms etc because anything onshore becomes more competitive as the pound goes down.

Getting back to the currency - the eurozone is looking fragile at the moment - in this uncertain financial environment its not inconceivable that the pound will suddenly gain favour over the euro and before you know its all swung the other way. However it wouild be better for the Uk if that doesn't happen for a year or two...

[VectraMan]

Client Co. is a manufacturing company that sell all over the world. So it's good for them, although offset to some degree by the parts they import costing more.

Should be beneficial to Plan B Co. too.

Boomed!

Shame all the pounds being earned aren't worth anything.

[Cliphead]

Well it's good for my Plan B. We are launching in the US before anywhere else mainly because the NAMM show in Los Angeles is the place to launch new products (next month).

Some potential US customers have had a sneak preview already and placed orders with more orders coming in by the day, we expect to sell out the first batch by the end of january. Now gearing up for full scale production.

[Turion]

Faqqing great that. On a global scale we have to become 30% poorer so that the few tin pot companies left that make anything here, can sell it abroad. Won't take long before a bit of inflation erodes that dubious advantage.

[PAH]

Any luck the £ will devalue so much it'll be cheaper to offshore to the UK instead of an Indian code/sweat shop and we'll all be deluged with work

I like it.

The added bonus is that only those with plenty of money will be able to afford to go on holiday abroad. No more brits abroad wearing football shirts. I cringe when I see them. So classy.