SMT Magazine

SMT-Oct2017

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48 SMT Magazine • October 2017 This month's column was planned to con- clude a series that analyzed the cost of materi- al in today's global economy. The first three dis- cussed the competitive importance of material cost considering it is generally 70–90% of the to- tal electronic product cost. 1–3 It was recognized that differences in the cost of material that are based solely on the geograph- ic location of where the product is being assem- bled frequently occur. Further, for a given pur- chase volume, any increased shipping and dis- tributor overhead costs do not justify the magni- tude of these differences. 4 The conclusion was that material price varia- tion to these levels—in some cases from 20% to 50+%—could only be explained by one of two reasons: 1. Certain affluent markets are simply will - ing to pay more (i.e., what the market will bear). 2. For political reasons (i.e., manipulating material pricing to funnel the value-added prod- uct assembly activity and the associated jobs to regions that are common to the material manu- facturers). This is an audacious claim that needs to be confirmed with data. That was the original in- tent of this column. Toward that end, many U.S. agencies and NGOs (non-government organi- zations) were contacted for data… still waiting. Hopefully , we will be able to take our finger off the pause button and hit "play" next month. Regardless, there are a few important points to be made while awaiting the data: 1. In a free global market economy, a com - pany can sell their products at any price they choose. They can even choose to provide those products to some customers at preferred pric- ing, unless there is an international agreement to the contrar y. It would be good to know this, wouldn't it? I'm not speaking of a material price preference given because a customer offers a higher level of business activity to a material supplier (i.e., annual purchase volume, or any other traditional business reason). I'm referring to component manufacturers and/or distributors increasing prices to "non-local" companies for the reasons stated above, perhaps with their gov - ernment's encouragement, or worse, direction. by Tom Borkes THE JEFFERSON INSTITUTE Analyzing Material Cost in Today's Global Economy—Hit the "Pause" Button JUMPING OFF THE BANDWAGON 48 SMT Magazine • October 2017

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