...forcing the company to outsource work overseas...

[Shwa]

This little blurb from the CBC needs an explanation since I am at a loss myself to come up with one. If anyone here can explain the CEO's comment, I would appreciate it.

Small story, I've quote the whole thing.

Ottawa tech plant announces layoffs

The manufacturer of electronic whiteboards is set to close its Ottawa assembly plant, laying off close to 200 employees.

Calgary-based SMART technologies, which runs the plant on Palladium Dr., makes computerized office supplies.

Its main product, the whiteboard, is a key educational tool in today's classroom.

SMART's manager and founding CEO said the strong Canadian dollar is forcing the company to outsource work overseas.

The first phase of layoffs is planned for September.

[Michael Hardner]

If the dollar is strong, it hurts our exports because it takes more foreign currency to buy something sold in Canadian dollars, I think.

[M.Dancer]

This little blurb from the CBC needs an explanation since I am at a loss myself to come up with one. If anyone here can explain the CEO's comment, I would appreciate it.

No simple answer...but a strong CDN dollar buys more (employees..) overseas than it does here...

Sales from Canadian companies' operations abroad grew at twice the rate of those at home for much of the last decade, at the expense of manufacturing jobs at home but giving the firms a competitive edge in the face of a strong dollar.

The findings, from research conducted by Export Development Canada, would also suggest Canadian firms have indeed taken steps to become productive and tap new markets, especially among emerging economies.

While exporting those goods manufactured abroad may be more competitive at a lower foreign exchange rate.

"This is a reflection of Canadian companies jumping on the bandwagon and adapting new ways of doing business -which means moving away from a model solely based on exports from Canada," Jean-François Lamoureux, trade analyst at Crown-owned EDC and head of the research efforts.

So while goods manufactured in Canada for Canadian conumers are unaffected, goods manufactured in Canada for overseas markets are at a disadvantage.

An example of how this is unfolding would be a company such as Research In Motion Ltd., which has a factory in Hungary to sell its BlackBerry devices into the Asian and European markets.

http://www.cme-mec.ca/?action=show&lid=JCKNC-E742G-1W6JA&cid=DP714-GVF6E-CBRD3&comaction=show

Obviously Smart Tech's market is greater outside of Canada..so the choice is, have a Canadain company do this, or surrender the market to foreign firms.

[Oleg Bach]

Let the companies make less...and hire Canadians. How much could it hurt a CEO - to make only 20 million in comparison to 30 through outsourcing. Profits are not what it is all about. How about showing some loyality and sustainablity of your nation of origin? Once everything is out sourced - and all we have are bean counters doing nothing in Canada...and the society declines - Where will these companies put head office? China? Not likely - as the CEOs profit...and the investorts profit - the bulk of Canadian society will get wise and dispise these people that will then be living in gated communities with private secruty..That is where it is heading for in the long run.

[kimmy]

My dad and my long-time special guy were both in the electronics industry. My special guy at one point worked for a start-up that decided to stop having its manufacturing done in Canada and have it done by a huge company in Asia. I heckled him at the time, and he explained it to me.

They couldn't raise the price they sell their product for, because customers would just buy from their competitors instead. So they had to make money by lowering their costs. The Asian company manufactured each unit for something like $20 cheaper per assembly. When they built in Canada they were barely making profit on each unit, and when they built in Asia they improved their margin by $20 per unit.

They were still losing money, as a company, because the margin on their sales weren't enough to meet all their expenses. But the $20 per unit they saved by building in Asia bought them time. Instead of burning through their investors' capital in 6 months, the decreased costs would be enough to make their capital last for 2 years, hopefully enough time to improve sales and design more products.

It wasn't a wealthy owner deciding whether to buy a Lamborghini or settle for a Porsche. It was a group of engineers deciding whether to make their company survive or be looking for work in 6 months.

-k

[Oleg Bach]

My dad and my long-time special guy were both in the electronics industry. My special guy at one point worked for a start-up that decided to stop having its manufacturing done in Canada and have it done by a huge company in Asia. I heckled him at the time, and he explained it to me.

They couldn't raise the price they sell their product for, because customers would just buy from their competitors instead. So they had to make money by lowering their costs. The Asian company manufactured each unit for something like $20 cheaper per assembly. When they built in Canada they were barely making profit on each unit, and when they built in Asia they improved their margin by $20 per unit.

They were still losing money, as a company, because the margin on their sales weren't enough to meet all their expenses. But the $20 per unit they saved by building in Asia bought them time. Instead of burning through their investors' capital in 6 months, the decreased costs would be enough to make their capital last for 2 years, hopefully enough time to improve sales and design more products.

It wasn't a wealthy owner deciding whether to buy a Lamborghini or settle for a Porsche. It was a group of engineers deciding whether to make their company survive or be looking for work in 6 months.

-k

Your speical guy...kind of like that- that someone is special to you...congrats Kimmy..he's a very lucky special guy. The buying of time might be fruitless as far as the company is concerened. You will never complete with a slave labour force unless you do exactly the same..That would eventually take the ownership of the company and literally trasphere it to Asia..be prepared to travel with your special guy to live in that special place called Tiawan.

[Thorn]

No simple answer...but a strong CDN dollar buys more (employees..) overseas than it does here...

The CDN$ has risen enormously in the last few years and has been killing manufacturing, particularly in Ontario. For a long time, CDN industry relied on that weak dollar in place of trying to improve productivity with new methods and technology. Ten years or so back a widget could be shipped to the U.S. and sold for US$1. That US$1 was then returned to Canada and translated into CDN$1.40 or so. Now the widget costs the same, but they're only getting CDN $0.97 for it. This helps explain why manufacturing, particularly in Ontario, has collapsed.

The government has done little to counter this other than a general lowering of corporate taxes, which not all industry needs. Certainly the resource sector doesn't, though they welcome the added profits.

One of the principle benefits of relocating overseas (the only one, really) is cheaper labour. The government could help counteract that by redesigning our taxation system. Eliminating employer contributions would be a major step in that direction. Every new employee costs the employer more in contributions for CPP and UIC. Which is why these taxes are called a tax on employment. I would have preferred to see them reduced or eliminated rather than a general corporate tax reduction.

[Remiel]

I believe this is what they refer to as " Dutch disease " .

[Shwa]

No simple answer...but a strong CDN dollar buys more (employees..) overseas than it does here...

Ok, so the focus is on this. Discounting the cost of materials at various global locations when you say buys more employees then we are essentially talking about cost-of-labour issue in Canada, yes?

[charter.rights]

Ok, so the focus is on this. Discounting the cost of materials at various global locations when you say buys more employees then we are essentially talking about cost-of-labour issue in Canada, yes?

That isn't how I understand it.

Right now the Canadian dollar is around par with the US dollar. If a widget costs $2CD then it is also $2USD. However, when the Canadian dollar was below parity our $2 widget actually only cost Americans about $1.50 USD. When our dollar rises above parity then the reverse is true - our $2 widget now costs them $2.12 each. If an Asian manufacturer sells widgets for around $1.50 US it makes a strong case for American retailers to switch to off shore suppliers. The rise in the Canadian dollar hurts Canadian exports to the US, our primary trading partner.

Thus to remain competitive Canadian manufacturers have to keep their cost low when the Canadian dollar rises to parity and above.

[M.Dancer]

Ok, so the focus is on this. Discounting the cost of materials at various global locations when you say buys more employees then we are essentially talking about cost-of-labour issue in Canada, yes?

That is only part of the answer.

[Thorn]

That is only part of the answer.

It is the main part.

Regardless of the rise or fall of the currency being used, raw materials are worth the same the world over. It does not cost the Mexicans any less to buy a ton of iron ore than it costs someone in Ontario. The low Mexican peso - presuming it is low -- simply means that labour is cheaper there, and everything the company has to pay in terms of labour, and for services and goods which include a labour cost, will be cheaper than in Canada.

[Topaz]

So what are the governments in Canada and the US doing about it? WE, North Americans can NOT live on $4-6 hourly wage, its tough on 10.25!! I like to know the difference in quality product between NA made of Third World?

[bush_cheney2004]

So what are the governments in Canada and the US doing about it? WE, North Americans can NOT live on $4-6 hourly wage, its tough on 10.25!! I like to know the difference in quality product between NA made of Third World?

North America includes Mexico, where $4-$6 is not bad at all.

[Bonam]

I like to know the difference in quality product between NA made of Third World?

If there is a difference in quality which results in added value to the customer, than that added value can be priced into the cost of the product. I would certainly pay more for a product that was of a higher quality, if the added quality was worth the added cost, and I often do just that. For example, last mountaineering jacket I bought was made in Canada and cost $600, but it's a heck of a jacket and well worth the price.

Edited August 12, 2011 by Bonam