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No doubt you will relate to Foad Ghalili when he expresses his concerns about rising input costs to doing business, from getting the right components, to delivery times, and price increases. But what’s unique for the president of Epoch International is the way his company has leveraged its U.S. and China operations to make the most of the other thing on everyone’s mind—the labor shortage. If you’re not already implementing his ideas, you will walk away from this interview with some sure-fire tips.
Barry Matties: There’s a lot of reporting on inflation and the supply chain, but what about the input cost impacts for the EMS providers, strategies you’re utilizing to mitigate those costs to help your customers and navigate for the future. What are the trends and pressures you see right now?
Foad Ghalili: When you break down the input costs into direct material, direct labor, and include facility and transportation cost, they are all under pressure right now. We are seeing a rise in every aspect, especially with semiconductors, at around 20%—that is, if you can get them. We are struggling to get components and spot buy has become a daily activity as we constantly look for different sources. We’ve seen semiconductors at prices two to three times than what we were paying about a year ago.
Labor is also on the rise, both in China and in the United States, though not as bad in China. In the U.S., besides the cost, we are also dealing with a constant transition of staff in a tight market, where everyone is looking for that higher salary.
We also see infrastructure costs on the rise. In China, we see a 2–3% rise in power consumption. The other is transportation where not only costs are increasing but also delivery time. Before, we could count on delivery times of three to four days between China and the United States through FedEx. Now, if we can get things in a week, we are lucky. Generally, you are seeing a major shift in every area. Demand is still strong, and the market is expanding, but to keep up with the demand is a major challenge.
Matties: How are the customers handling the price increases?
Ghalili: Some customers understand, everybody knows the price of components, as they are readily available. An intelligent customer understands what is happening in the market and they’re willing to work with you.
Matties: In the U.S., we’re having a hard time finding people to take the jobs. Is there a trend in China, like the U.S., where people aren’t wanting necessarily to work, or is it more job-hopping?
Ghalili: In China, we don’t have much problem with finding or maintaining the labor. It’s nothing like our facility in Fremont [California], where finding and keeping employees has become a challenge. In China, we are finding and maintaining our workforce, but salaries are on the rise, and we expect it to continue.
Matties: Where do you see this headed? Do you see a plateau in the wage increases or do you see a sustained rate of increase?
Ghalili: I think it will plateau in China. In the past 15 years, we were seeing 15–20% pay increases. It’s starting to plateau around 4–6%. In our industry, we’ve been a bit on the upper end, running around 6% and anticipating the same next year.
The U.S. is a completely different market where the difficulty is just in finding the labor force. Engineers are hard to find, and the demand for the engineering and technical field is very high.
Labor cost increase is a constant struggle we are having in both the U.S. and China. We are trying to see how much we can leverage each facility, for example, the engineers here (in China) supporting the engineers in the United States. We want to build synergy between the two companies in supporting each other.
To read this conversation, which appeared in the February 2022 issue of SMT007 Magazine, click here.