Issue link: https://iconnect007.uberflip.com/i/1357726
12 SMT007 MAGAZINE I APRIL 2021 becoming more attractive because of the new initiatives by the Chinese government to cre- ate new infrastructure in that part of China— making it a lot easier to ship by rail to Europe rather than the ocean route. Let's face it, these suppliers are working with a razor thin margin already. Many of them are losing money but making it up in volume, as the joke goes. So, any way that they can find to lower labor costs is to their advantage. Trans- portation costs for this kind of stuff—we're not talking about washers and dryers, or air- planes—we're talking about electronic com- ponents. Transportation costs are pretty low, that's not really a problem, but labor costs are very, very high. If they can ship final assem- bly or higher-level assembly to lower labor cost parts of the world, if their production is already pretty highly automated, then lower labor costs are not going to help much. Barry Matties: at's the case in southern China. My understanding is that many of the cities are mandating automation if you want to expand your business. ey're not allowing employ- ees. Rodgers: Exactly. Matties: You're talking about a cycle that's been going on forever, though. We've always chased low labor. Rodgers: Absolutely. Dan Feinberg: Let's say that the dollar deval- ues significantly over the next few years. What effect do you think that will have? Could that change things? Rodgers: Absolutely. Again, we have to look at all the contributors to cost here, not just labor costs. Transportation costs have become ridic- ulously cheap. It's become really, really easy to move stuff. at wasn't always the case. ese are small electronic components, so the rela- pared to smartphones that were being smug- gled into Argentina via the black market. I just share that as a cautionary tale. While there's a lot of interest in home-shor- ing and reshoring, I think people are discov- ering that these supply chains are a lot more complex, it's a much bigger network, and it's not as simple as it looks. Johnson: at encapsulates the end-user demand perspective. Is there any change underway at the headwaters, from the top end of the supply chain? Rodgers: I think the biggest factor influenc- ing the motivation of suppliers is labor costs. As I mentioned, most of the electronics sup- ply chain has been in Guangdong Province. Labor cost in that part of the world is rising sig- nificantly and has been for a long time. We're seeing a lot of Taiwanese and Chinese com- panies looking for lower labor costs. at's tak- ing them to places like Chengdu, Chongqing— places in central and western China that are Tim Rodgers