On 29 April 2005, China’s currency, the yuan, briefly traded outside its normal government-controlled range of 8.276 to 8.280 to the dollar, sparking widespread speculation that the long-anticipated revaluation of the yuan was imminent. Although China’s central bank denied that the value fluctuation was driven by any policy change, some believe it may have been a deliberate test of the impact of a change in the yuan’s value. China has been under pressure from the U.S. and other governments to loosen its restrictions on the yuan, whose low value provides an advantage to China’s exporters. Given the central bank’s denial following Friday’s value fluctuation, yuan revaluation may not occur within weeks, as some initially speculated, but many financial analysts still expect it to happen before the end of 2005.

The events of 29 April highlight the need for firms with global supply chains to consider the potential impact that events such as currency revaluation may have on global sourcing strategies ? and, consequently, on the IT strategy developed to support these supply chains. For example, if revaluation of the yuan occurs, its value will likely rise, eliminating many of the motivations for companies to source products from China. This could slow or reverse the outsourcing and overseas-sourcing plans that many U.S. and European companies are pursuing.

Many firms’ business application IT strategies ? particularly those of retailers ? are based on the assumption of continued, rapid and inevitable expansion of global sourcing. Be aware that changes to your business application IT strategy may be required in the event of global events such as the yuan revaluation, and begin to prepare for this contingency.

The impact of such events can extend beyond an enterprise?s own immediate sourcing needs. For example, if yuan revaluation occurred, this could reduce the negotiating power of large mass retailers by limiting their sourcing options. While consumer goods manufacturers must continue to provide a high level of service to retailers, revaluation may reduce the level of major IT and process accommodations that manufacturers have recently yielded to large retailers in areas such global data synchronization and radio frequency identification (RFID).

Recommendations for companies participating in global supply chains: No immediate, drastic action is necessary. However, begin thinking about system requirements for “insourcing” supply chain processes, domestically sourcing goods or finding alternative international sources. Don’t base decisions about system retirement on the blind assumption of continued global expansion and inevitable outsourcing of business processes.

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