PRICING & PURCHASING SUMMIT WASHINGTON DC | NOVEMBER 11-12 2014 PRICING & PURCHASING SUMMIT

Global Sourcing Risk: Results from the IHS Survey 12, November 2014 Laura Hodges, Director, +1 202 481 9237, laura.hodges@ihs.com

Agenda Introduction 2014 Results Comparison to the Previous Results Key Takeaways

A Shift in Global Sourcing Strategies? Pricing & Purchasing Summit / November 2014 A Shift in Global Sourcing Strategies?

Can you have it all in today’s increasingly complex world? 12/6/2018 5:37 PM Pricing & Purchasing Summit / November 2014 A New Balancing Act: Cost vs. Risk Can you have it all in today’s increasingly complex world? Diversification? Duplication? Lower cost?

China is by far the largest trading partner with the US Pricing & Purchasing Summit / November 2014 China is by far the largest trading partner with the US Share of US import by country of origin, percent © 2014 IHS Source: Global Trade Information Service

Which countries had the largest change? Pricing & Purchasing Summit / November 2014 Which countries had the largest change? Percent change in US import by source of origin, 2000 to 2013 © 2014 IHS Source: Global Trade Information Service Largest Gain Vietnam Chad Lithuania Largest Loss Philippines Hong Kong Malta

IHS wants to track these sourcing trends Pricing & Purchasing Summit / November 2014 IHS wants to track these sourcing trends Over the past 3 years IHS has conducted an annual survey of global procurement / purchasing executives to assess the current risk environment and sourcing trends Completed in September of 2012, 2013 and 2014 More than 500 respondents annually with a majority from the US but also from Europe and Asia Survey objective: Determine how companies’ sourcing strategies will change Identify companies’ strategies for outsourcing to China or other sites Assists our team in our research strategy to deliver pricing intelligence

Survey Results – September 2014 Pricing & Purchasing Summit / November 2014 Survey Results – September 2014 Laura Hodges, Director, +1 202 481 9237, laura.hodges@ihs.com

Pricing & Purchasing Summit / November 2014 Which regions will experience the most volatility in the next 24 months? Share of respondent in the 2014 survey, percent © 2014 IHS Source: IHS Volatility with regards to the economy, labor rates and material pricing

What are your sourcing plans over the next 5 years? Pricing & Purchasing Summit / November 2014 What are your sourcing plans over the next 5 years? Mexico (22.6%) India (20.0%) Where will you INCREASE your sourcing presence? US (43.1%) China (26.3%) EU (20.6%) Other Where will you DECREASE your sourcing presence? US (28.1%) China (22.5%) Source: IHS

China will remain a low-cost destination for the next 12-24 months Pricing & Purchasing Summit / November 2014 China will remain a low-cost destination for the next 12-24 months Share of respondent in the 2014 survey, percent © 2014 IHS Source: IHS

46% 27% 19% Move operations closer to home Pricing & Purchasing Summit / November 2014 What is the primary reason that you are planning to decrease your presence in China? 46% Move operations closer to home 27% Diversify suppliers and operations 19% Move to a lower-cost region Source: IHS

Survey Results from 2014, 2013, and 2012 Pricing & Purchasing Summit / November 2014 Survey Results from 2014, 2013, and 2012 Laura Hodges, Director, +1 202 481 9237, laura.hodges@ihs.com

Pricing & Purchasing Summit / November 2014 Which regions will experience the most volatility in the next 24 months? Share of respondent in the 2012, 2013, 2014 surveys, percent © 2014 IHS Source: IHS Volatility with regards to the economy, labor rates and material pricing

The European Union is MUCH less of a concern now Pricing & Purchasing Summit / November 2014 The European Union is MUCH less of a concern now Share of respondents concerned about the volatility in the EU, percent © 2014 IHS Source: IHS

Pricing & Purchasing Summit / November 2014 What is the primary reason that you are planning to decrease your presence in China? 2012 2013 2014 Diversify suppliers and operations 39% 27% Move to a lower-cost region 31% 18% 19% Move operations closer to home 15% 44% 46% Source: IHS

Pricing & Purchasing Summit / November 2014 What are you most concerned about when making sourcing or manufacturing decisions in China? 2012 2013 2014 Price inflation 56% 45% 41% Quality issues 48% 63% 55% Wage growth 46% 38% Shipping and logistics delays 35% 39% 49% Source: IHS

China will remain a low-cost destination for the next 12-24 months Pricing & Purchasing Summit / November 2014 China will remain a low-cost destination for the next 12-24 months Share of respondent in the 2014 survey, percent © 2014 IHS Source: IHS

Pricing & Purchasing Summit / November 2014 Key takeaways Companies are re-thinking China but are not moving away significantly as a sourcing destination For those that are reconsidering their current strategy, Mexico and the US are winners as a sourcing destination Cost is just one decision consideration for choosing sourcing partners Minimizing risk is a larger consideration right now by moving suppliers and operations close to home and diversifying the supply chain Companies are being pulled away from China because of the US increasingly favorable cost environment and lower risk - not because of Chinese cost concerns

Thank You! Questions?