Chindia and the declining dollar
While the US is going through a recession, about half of the world's economic growth this year will be accounted for by Brazil, Russia, India, and China (eds note: often referred to as the BRIC group of countries).
China's total growth is more than the US, Europe and Japan combined. India by itself is contributing more growth to the world economy than the US.
Chinese demand for oil, metals and all the other raw materials of industrialisation is pushing commodity prices to ever-higher peaks. Chinese and Indian crude oil imports will almost quadruple in 20 years, creating an ever worsening supply crunch.
The value of the US dollar keeps falling. It is now only 75% of the euro. When I visited India in early 2007, I got 45 Indian Rupees for my dollar; at the end of 2007 it was only 36 - a decline of more than 20%. How low can it go?
The price of oil has jumped beyond $100 a barrel. Actually, oil prices have not increased - the dollar has declined. China is dumping its huge horde of dollars - over a trillion - and switching to the euro. Three of the biggest oil exporters, Iran, Venezuela and Russia, are now demanding payment in euro rather than dollars. Clearly the dollar is losing its status as the world currency.
For most Americans, if they do not travel abroad, the only visible effect is higher fuel prices at the pump. The prices of Chinese imports remain the same, because the Chinese Yuan is still pegged to the dollar. But that will probably change soon, and then consumer prices will skyrocket, and we will have stagflation.
Through America's (im)Balance of Payments and offshore investments a huge share of American capital is pouring into India, China and other overseas funds. Meanwhile, Sovereign Wealth Funds from countries flush with cash - Dubai, Saudi Arabia, China - control as much as $3 trillion; and this could jump to $12 trillion by 2012. China has so much money that its wealth-funds are 'investing' in bailing out ailing US financial giants like Citibank, Bear Stearns, and JP Morgan. What do you think their motives are?
America cannot continue to spend $2 billion a day on an unpopular war, and live on borrowed money, while the living standard of the American middle class continues to decline.
Whoever the next president is, and whatever their political promises, it is difficult to imagine how they can dig America out of this hole that keeps growing deeper and deeper.
Performance-based pricing
Products in the automation industry have traditionally been sold using cost-based pricing - selling price based on manufactured cost, with target gross and net profit margin multipliers. But global competitors (especially China) are prepared to compete with lower profit margins. So, the traditional cost-based pricing model is seriously flawed.
The tactical response by large automation suppliers is to offer broader ranges of products, software, systems and services. But this still has the effect of reducing overall profit margins. The problem lies in obsolescent cost-based pricing.
The cost-based model is a zero-sum game between supplier and consumer - the one's gain is the other's loss. The focus must move to win-win - simultaneously providing greater customer value and higher supplier profitability. Performance-based pricing is the answer. It allows the up-front cost to the buyer to be relatively low, and offers the seller a high return based on performance.
Performance-based pricing gives insurance. It guarantees that when suppliers provide more, they are paid more. Buyers also receive insurance through paying only for the performance delivered. With performance-based pricing, suppliers get the opportunity to manage customer value and be closely involved with generating additional profits for both sides.
The model must include service and maintenance, because performance is attained only when the product or system is operating.
Jim Pinto is an industry analyst and commentator, writer, technology futurist and angel investor. His popular e-mail newsletter, JimPinto.com eNews, is widely read (with direct circulation of about 7000 and web-readership of two to three times that number). His areas of interest are technology futures, marketing and business strategies for a fast-changing environment, and industrial automation with a slant towards technology trends.
© Technews Publishing (Pty) Ltd | All Rights Reserved
printer friendly version