A bit miserable

Sources: IBGE; Nomura

Brazil’s:

2010 11 126

3

0

3

6

9

12

+

–

consumer pricesGDP GDP growth

minusinflation, %% change on a year ago

Where the money goes

Sources: The Heritage Foundation; Economist Intelligence Unit

Top destinations for Chinese outward investment2005-12, $bn

0 10 20 30 40 50

Australia

United States

Canada

Brazil

Britain

Indonesia

Russia

Kazakhstan

As % of inward investment stock

8.5

1.8

5.9

4.2

1.2

11.2

2.1

9.5

China: Yes please

Source: Bloomberg New Energy Finance

Nuclear reactors under constructionJanuary 2013

0 5 10 15 20 25 30

China

Russia

India

United States

South Korea

Others

Painful

Sources: Eurostat; Thomson Reuters

Spain

2010 11 12

16

18

20

22

24

26

28

2.0

2.5

1.5

1.0

0.5

0

0.5

1.0

+

–

10-year gov’t bond spreadsover German bunds, % points

0.5 2.9 4.7 6.4 4.0

Unemploymentrate, %

GDP, % changeon a year earlier

2The big three

Source: US Census Bureau

US trade, $bn

0

100

200

300

400

500

2000 02 04 06 08 10 12

European Union European UnionChina China

Imports from Exports to

1Coming home

Source: US Department of Defence

US overseas troop deployment, ’000

0 200 400 600 800 1,000

FY 2009

FY 2013

Afghanistan Iraq Other

Better, hardly great

Sources: Bloomberg; IMF

GDP, 2013 forecast, % change on previous yearSpain’s sovereign-yield curve, %

Years to maturity

0

2

4

6

8

10 2 3 4 5 6 7 8 9 10

January 16th 2013

July 25th 2012 4 3 2 1 0 1 2+–

Ireland

Germany

Netherlands

France

Italy

Portugal

Spain

Greece

Stock shock

Source: MarketAxess

Primary-dealer inventory of US corporate bonds, $m

2002 03 04 05 06 07 08 09 10 11 12 130

50

100

150

200

250

The blushful Hippocrene

Source: World Bank and International Trade Centre

Exports, 2001=100

0

100

200

300

400

500

2001 02 03 04 05 06 07 08 09 10

developed developed to developingdeveloping developing to developed

Between (countries) From (countries)

Ins and outs

Sources: World Trade Organisation; The Economist

exports to, % of total imports from, % of total

0

20

40

60

80

100

1963 73 83 93 2003 11

Canada and MexicoLatin America

EuropeChina

JapanOther Asia

Rest ofthe world

0

20

40

60

80

100

1963 73 83 93 2003 11

United States merchandise:

Value-added trade

Source: OECD and World Trade Organisation

Selected countries, electronics exports, 2009, $bn

0 100 200 300 400 500

China

Japan

United States

South Korea

Germany

Mexico

Switzerland

Britain

France

Italy

29

15

11

40

25

31

31

17

26

18Foreign contentof all exports, %

Foreign content Domestic content

Stars and swots

Sources: Pearson; UNESCO*”The Learning Curve” (2012)

†Primary to tertiary

Selected countries, 2011 or latest available

Educationranking*, as % as % of gov’t2012 Country of GDP spending1 Finland 6.8 12.1

2 South Korea 4.8 15.8

3 Hong Kong 3.5 20.1

4 Japan 3.4 9.4

5 Singapore 3.5 21.4

6 Britain 5.6 11.3

7 Netherlands 5.9 11.5

8 New Zealand 5.6 16.1

9 Switzerland 5.5 16.2

10 Canada 5.0 12.3

12 Denmark 8.7 15.1

13 Australia 5.1 12.9

14 Poland 5.1 11.4

15 Germany 5.1 10.5

17 United States 5.4 13.1

Public spending on education†

Manufacturing outsourcing% of US cost

708090100

2005 07 09 11 13

F’CAST

15

Mexico China India

The Geithner record

JoinsTreasury

Mexico“Tequila crisis”

Thailand, Indonesia,Korea crises

Brazilbail-out

Joins IMF

Brazil bailedout again

Becomes presidentof New York Fed

Bear Stearns,AIG, TARP

Becomes treasurysecretary;

bank stress tests

Dodd-Frankbecomes law

Debt ceilingshowdown

Fiscal cliff

1988 94 97 98 01200099 02 03 08 09 10 11 1204 0504 05 06 079089 91 92 93

Source: The Economist

Losing its lead

Source: Autodata

Share of US light-vehicle sales, %

0 5 10 15 20 25

GM

Ford

Honda

Nissan

Chrysler

Toyota

2011 2012

Facebook friends again

Source: Thomson Reuters

Facebook’s share price, $

May Jun Jul Aug Sep Oct Nov Dec

2012Jan

2013

0

10

20

30

40

Germany’s GDP

Sources: Federal Statistics Office;Haver Analytics *Estimate

% change on a year earlier

*

2008 09 10 11 125.0

2.5

0

2.5+

–

The Brown effect

Source: CaliforniaDepartment of Finance

*Estimated in January before thebeginning of the fiscal year

California’s state budgetGeneral-fund budget balance*, $bn

Fiscal years beginning July 1st

50

40

30

20

10

0

10+

–

2008 09 10 11 12 13

P A C I F I CO C E A N

C H I N A

SOUTHKOREA

NORTHKOREA

PHILIPPINES

I N D O N E S I ASINGAPORE

M A L A Y S I A

CAMBODIA

THAILAND

LAOS

TAIWAN

Beijing

V I ET

NA

M

SouthChinaSea

EastChinaSea

CelebesSea

JA

PA

N

Tokyo750 km

TAIWAN

CHINA Senkaku/

DiaoyuIslands

E a s tC h i n a

S e a

J

A

PA

N

P A C I F I CO C E A N

Shanghai

375 km

A

AIWANTATATA

EastChinaSea

JAA

PA

PACIFICOCEAN

PHILIPPINES

I N D O N E S I A

SINGA-PORE

MA

L A Y S I A

LAOS

THAILANDCAMB.Bangkok

Manila

KualaLumpur

V

I ET

NA

M

MYANM

AR

S o u t h C

h i na

Se

a

A

B

Celebes Sea

P H I L I P P I N E SM I N D A N A O

Proposed Bangsamorostate

MALAYSIA

21

3 4

TH

A

IL

A N D

1. SONGKHLA2. PATTANI3. YALA4. NARATHIWAT

A B

500 km D E N M A R K

G E R M A N Y

FORMEREAST

GERMANY

FORMER WEST GERMANY

BELG.CZECH

REPUBLIC

Berlin

Frankfurt

Bremen

Hamburg

N o r t h S e a

Baltic Sea

LUX.

NETHER- LANDS L O W E R S A X O N Y

Hanover

Hildesheim

Bremerhaven

NORTH RHINE-WESTPHALIA

Main

Rhine

Bonn

PO

LA

ND

Dusseldorf

150 km

CHINA

Tokyo

Beijing

P A C I F I CO C E A N

NORTHKOREA

SOUTHKOREA

TAIWANSenkakus/Diaoyus

J A PA

N

EastChinaSea

YellowSea

500 km

CHINA Tokyo

Beijing

P A C I F I CO C E A N

NORTHKOREA

SOUTHKOREA

TAIWAN Senkakus/Diaoyus

J A PA

N

East China Sea

500 km

MALI

Bamako

Timbuktu

In Amenas

Diabaly

ALGERIA

MAURI-TANIA NIGER

NIGERIA

CHAD

LIBYA

ATLANTICOCEAN

750 km

A L G E R I AA L G E R I A

M A U R I T A N I A

M A L I

GHANA

BURKINA FASO

G U I N E A

Bamako

GaoGao

TimbuktuTimbuktu

Sevaré Niger

DiabalyMarkala

KidalKidal

Konna

BENIN

Mopti

Area controlledby jihadists Source: France 24

Tuareg areaFrench air strikesas of January 16th

500 km

Sources: AlixPartners; McKinsey; Hackett

Companies’ intentions to change manufacturing source, worldwide, % of capacity

Change in US jobs because of outsourcing

F O R E C A S T

2009-11

2012-14 Offshore

26%

23%

16%

24%

9% 6%

19% 9%Move betweenlow-cost countries Reshore

Move betweenhigh-cost countries

Other transport equipment

Machinery

Metals and minerals

Paper and printing

Automotive

+95

+50

+21

+13

+6

Wood and furniture

Food and beverages

Chemicals, plastics,petroleum and coal

Textiles and clothing

Computers andelectronics

Other

-9

-18

-84

-284

-407

-70

60

70

80

90

100

2005 06 07 08 09 10 11 12 13 14 15

MexicoChina

India

Manufacturing outsourcing cost index% of US cost 2000-10, ’000

0

3Revolving door

Source: Company reports *Worldwide

Labour turnover in Indian outsourcing firms% of total employment in those firms

0

5

10

15

20

25

2006 07 08 09Financial years ending March

10 11 12

Wipro (voluntary)

Wipro

Tata Consulting Services*

HCLTechnologies

Infosys

6The limits to reshoring

Source: Deloitte, The Manufacturing Institute

US companies, 2011, % of respondents

In which employee segments have skill shortages hindered your company’s ability to expand or improve productivity?

0 10 20 30 40 50 60 70 80Skilled production(machine operators, technicians)Production support(industrial engineers, planners)

Unskilled production

Sales and marketing

Scientists and design engineers

Management and administration(HR, IT, finance)Customer service(including call centres)

2Decisions, decisionsReshoring, selection of companies

Sources: Boston Consulting Group; PricewaterhouseCoopers; press reports; The Economist

Chesapeake Bay Candle

Production was shifted from China to Maryland in 2011. The company will export to China from there

Rising labour costs in China; wanting to respond more quickly to customers

Company What and where Why

Ford Motor Company

Production of medium-duty trucks is moving from Mexico to Ohio, saving 2,000 jobs. Adding extra capacity to a Michigan plant will save another 1,200

Thanks to an agreement with the trade union, the firm can now hire new workers at $14 an hour

Otis Elevator A factory is being moved from Mexico to South Carolina

To keep R&D closer to manufacturing and reduce logistics costs

General Electric

Production of large household appliances (eg, water heaters, fridges) is being shifted from China and Mexico to Kentucky

Having manufacturing, design and development close together; being more responsive to customers

Sleek Audio Production of high-end earphones has moved from Dongguan in China back to Florida

Quality problems in China

5Keep it going

Source: “The Handbook of GlobalOutsourcing and Offshoring” by IlanOshri, Julia Kotlavsky, Leslie Willcocks

*Mostly offshored†Enterprise resource planning

‡Customer relationship management

European companies’ outsourcing* by department, %

0 10 20 30 40 50 60

IT infrastructure and data management

IT and technology consultancy

ERP†: maintenance, upgrades,implementations

Finance and admin, HR,call centres, sales, marketing

Software testing/quality assurance

Solutions design and systemsarchitecture

CRM‡: master data/customerexperience managementData warehousing and businessintelligence systems

March 2009 March 2011

Fading advantage

Source: Offshore Insights Research *Management and logistics

4

0

20

40

60

80

100

120

0

5

10

15

20

25

30

2001 03 05 07 09 11 13 15

Indian programmer’saverage salary, $’000

Extra costs*,$’000 Labour

arbitrage, %US programmer's average salary, $’000

F O R E C A S T

1It still makes sense

Source: ISG

30

40

50

60

70

2003 04 05 06 07 08 09 10 11 12†

*Advised on by Information Services Group (ISG), an outsourcingconsultancy, which covers about half the total

†Year to date

Share of American and European companies’ outsourcing contracts* with an offshore element, %

I N D I A N

O C E A N

Bab el Mandeb

A U S T R A L I A

P A C I F I C

O C E A N

NEW GUINEA

Kerala

PHILIPPINES

I N D I A

PAKISTAN

C H I N A

Sydney

Quetta

Landmass extent at glacial maximum*

Modern coastlines

Source: ZurichUniversity ofApplied Sciences

*Approximately20,000 years ago

Approximate bronze-age extent of of Indus valley civilisation

Dravidian regions today