For the first time since I started measuring more than five years ago, and most likely for the first time ever, the labor cost for assembling printed circuit boards (PCBs) is lower in the U.S. than in Canada.
No, you did not misread that statement. By my recent calculations, the average U.S. cost for fully burdened direct labor for PCB assembly is $39.10 per hour. The comparable figure in Canada is $45.80 – 17 percent higher.
The weakened U.S. dollar has turned upside down many assumptions we’ve been using to calculate total cost of ownership (TCO) in electronic manufacturing sourcing decisions. Everyone – OEMs and contract manufacturers – has something to lose.
Canada is not a huge outsourcing destination for OEMs, but it has been a regular North American manufacturing site because it was less expensive than the Lower Forty-Eight. The strength of the Canadian dollar changes that.
The Euro is about 50 percent stronger against the dollar than it was when many current outsourcing contracts were written for European sites. China and the rest of Asia are also seeing some, though less, impact from the falling U.S. dollar.
If your company’s CFO doesn’t have a corporate currency risk mitigation strategy, then shame on him or her. Contingencies for currency fluctuations are not typically written into outsourcing contracts.
U.S. OEMs and their CMs usually set contracts in U.S. dollars; if the dollar weakens someone takes a hit. Right now, that someone is the CM that must pay a labor force in Euros or Canadian dollars.
OEMs now negotiating contracts for future sourcing can expect U.S. dollar costs to rise accordingly, especially if they’re determined to outsource to Canada or any country using the Euro, or that has a local currency closely tied to the Euro, as many Eastern European countries do. (Most of them intend to move to the Euro but not for a couple of years yet.)
As ever, TFI’s Outsourcing Navigator can help you sort this out; in December I’ll issue a revised version that takes the weakened dollar and other changes into account.
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Welcome to globalization. This is was supposed to happen as the world becomes flat. Odd that no one cared when it was US labor that lost their jobs to market value differences.
This has long been overdue as well. To bad the US dollar is going to go way down. This is just the beginning because the poker game has stopped with the banks and everyone is checking their cards to see what sort of toxic waste they bought.
Hope globalization allows America to recover but I have a feeling when free trade is on the other foot we will see protections put in place. It looks like America might just become the new China if the dollar dumped internationally.