The US economy is not in a very happy or stable state as of today, mainly because of the troubles in the financial services industry and real estate meltdown. Giant financial corporations like Citigroup and Meryl Lynch are in trouble and almost all companies and banks in the financial services and construction industries are taking a beating. Organizations that depend on them are also in the same boat. No one will dispute that recessionary pressures exist in USA. The dollar is weakening against all currencies. We must not forget that USA is a consumer driven society and Americans are very large buyers and purchasers of everything under the sun. Weakening of the dollar will make imported products more expensive for the Americans.
However, there is a flip side to it. As the dollar is weak, it will make exports from USA more competitive. This means corporations that have large overseas sales will benefit and will not be affected. But, those depending on domestic markets will take a heavy beating. The most high growth economies in the world today are China, India and Russia. There is a huge demand for construction activities in these countries. They all have their own construction equipment manufacturers. However, a company like Caterpillar will benefit because of the weakening dollar.
Another example is that of the world's largest technology company HP. Its overseas sales contribute around 65% and as a result, it has continued to do well. The weakening dollar has enabled it to do still better. Cisco has done reasonably well. Dell has suffered because it gets only 35% of its sales from overseas. IBM has had its troubles but has a large overseas presence. The Silicon valley software firms which depend on FSOs will take a heavy beating. If you are an investor in stocks, you must invest in companies that have a large overseas sale outside USA.
There can be many more such examples but the moral of the story is very simple. You must follow the old adage of not having all your eggs in one basket. Do not overly depend upon any particular industry. Do not overly depend upon any particular area. Spread your wings wide but put all your resources at the single most decisive point.
How does the slowing down of the US economy affect other countries ? All countries and economies which depend upon exports to USA will suffer because of the weakening dollar. The typical case is that of India's software majors. The Chinese manufacturing juggernaut is not being affected much but the Yuan is artificially priced. The minute the Chinese economy integrates fully with the global economy, it will rise. At that time, China Inc., may no longer be so competitive. India is slowly integrating with the global economy and it is evident from the dollar exchange rate coming down from 47 to 39 rupees to a dollar in 6 months. Indian software companies which depend upon the US market by as much as 80% are bound to be largely affected. Euro and Sterling pounds are at their strongest. It will make them more expensive. European and British firms which export to developing countries will be affected as sources can be changed to US firms.
The oil prices are set in dollars. The weakening of dollar will make the prices of oil further go up. It is already hovering around USD 95 per barrel. The real impact has not been felt by developing nations because the dollar is weak and their own currencies have appreciated against it. But the fact remains that while dollar has depreciated by 10% against most currencies, oil prices have shot up by 25 to 30% in the last one year. The oil prices always have political implications because of OPEC cartel and USA must release its strategic oil reserves so that the global oil prices will come down. However, to what extent that will be done is a matter of debate because it is beneficial to US economy to have a weak dollar as on date.
© Copyright, Nov, 20-07 . www.madgopes.com . Without prejudice. All rights reserved
Economic Conundrums as being witnessed in USA today - To learn more about this author, visit Madhavan T Gopalachary's Website.
Like this article? Share it with your friends
|
|
Madhavan T Gopalachary
(Visit Madhavan's Website)
Madhavan Gopalachary, nick name "madgopes"
(g pronounced as in go) given by IIT
classmates, is a Mechanical Engineer and
an alumnus of Indian Institute of
Technology, Madras having passed out
specializing in IC Engines &
Thermodynamics.
He has nearly 35 years of experience in
the Corporate World. He started off as a
trainee and handled sales, marketing,
manufacturing, product management, profit
center management, strategic planning and
corporate development including R & D in
various organizations and at various
levels before becoming a CEO. His last two
professional assignments were at CEO level
before embarking to start management
consultancy business on January 01, 1998.
He has worked for British, Swedish MNCs as
well as very large Indian business houses.
He has spent a large portion of his time
from June 1998 till date in East African
Countries practicing as an independent
Management Consultant.
More details can be obtained at the
following web sites:
mmg.name/
mtg.html
mmgconsu
lting.biz/
Madhavan's articles can be accessed at www.madgopes.com
.
|
|
 |
|
|
Madhavan T Gopalachary's
Complete
List Of
Management
Articles
|
|
|
If you enjoyed this article, get Madhavan T Gopalachary's Complete List of Management Articles For FREE!
|
| |
|
|
|
![[Get Copyright Permissions]](http://license.icopyright.net/images/icopy-w.gif){kind=small}
