PCB007 Magazine

PCB007-Dec2021

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DECEMBER 2021 I PCB007 MAGAZINE 19 things which were causing companies to re- examine their supply chains. We had length- ened supply chains over numerous years, pri- marily to reduce cost within those supply chains and to avoid tariffs. e tariffs that were put in place under President Trump change those equations. Companies were thinking about it already, but the tariffs caused them to start looking at alternatives. Initially they looked throughout Asia. We started to see Vietnam, Cambodia, Malaysia, Indonesia, and other places all become areas of exploration. e pandemic hit and that caused a lot of companies to look closer to home, in Mexico, and other places like that. It's happen- ing on the margin. But this is a slow process. You build a factory, and it has multiple decades of usability. It takes some time for a major tran- sition to take place. Matties: Do you think the inflation is slowing the reshoring drive? DuBravac: When companies are looking at reshoring decisions, I don't know that they're necessarily looking at it as, "Should we reshore or not?" I think they're looking at it in a holis- tic sense, asking, "Where should we manufac- ture?" ey're looking much longer than near term inflation pressures; the next three, five or 10 years. I think the jury is still out whether inflation pressures could be as severe in three years, five years. ere's an argument that they won't even be this severe in a year. ere are some arguments against that as well. But I think that in much longer time horizons they don't consider some of those near-term pressures. e flip side is that, if you're looking at a capital deployment and factories of the future, arguably the cost is going to be com- parable wherever you are in the world outside of some labor component tied to deploying that capital. So, if I'm buying equipment, it will have a general global price and I'm going to pay the same wherever I buy it. Now, I'm going to have some other costs based on local implementa- tion or regulation. Let's say Apple suddenly and unilaterally said, "We're going to produce 50% of what we sell in every market inside of that market." It's not a reshoring decision by itself but that they want to service the markets with production inside of those markets. en you would see a big swing back because there is so much consumption in the U.S. You've had a lot of companies say, "ere's a lot of ambiguity happening right now in China, and we don't want to be in this market." At the same time, you have a lot of the Chinese com- panies which have lost a lot of value in the last year as there seems to be a tightening of the regime's direction. I think the tariffs in place are a factor, but there are a lot of forces that have diminished the view of China. Matties: Shawn, you have given us a lot to con- sider today. ank you and we look forward to seeing you at IPC APEX EXPO. DuBravac: ank you, Barry. PCB007 References 1. "Prepared Remarks Before the Principles for Responsible Investment 'Climate and Global Finan- cial Markets' Webinar, July 28, 2021. I think the jury is still out whether inflation pressures could be as severe in three years, five years. There's an argument that they won't even be this severe in a year.

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