Engineering Inc. - May/June 2008 - 6

market watch Falling Dollar Turns U.S. Into Low-Cost Producer By Joe Salimando ecent business headlines tell a sad story: “A 16-Year Housing Slump?” asks Barron’s. “Debt Reckoning: U.S. Receives a Margin Call,” notes the Wall Street Journal. Such bleak prognostications bring to mind the old saying, “It’s always darkest just before it turns pitch black.” But it’s not all doom and gloom for market watchers. As the U.S. dollar continues to lose value (see Figure 1), there is another side of the declining coin: n A weaker dollar makes it increasingly difficult for multinational and U.S.based firms to financially justify the offshoring of jobs; n U.S.-based construction— including the revitalization of existing buildings and even the reuse of abandoned industrial facilities—starts to look like a much smarter play; n Foreign governments are holding vast amounts of U.S. dollar-denominated securities. This is especially true for countries such as China and for Middle Eastern oil exporters. For them, it’s quickly becoming a game of “use it or lose it”—a fact that could lead to increased investment on U.S. shores. United States vs. China R renminbi’s value relative to the dollar is hurting the Chinese economy, stimulating increased inflation (8.7 percent on an annual basis in February 2008); n China has struggled in the manufacturing game of late—problems often linked to a talent shortage, particularly in engineering sectors. “The main drawback of Chinese applicants for engineering jobs…is the educational system’s bias toward theory,” states a recent article in The McKinsey Quarterly. “Compared with engineering graduates in Europe and North America, who work in teams to achieve practical solutions, Chinese students get little practical experience in projects or teamwork. “The result of these differences is that China’s pool of young engineers considered suitable for work in multinationals is…no larger than the United Kingdom’s.” FIGUre 1 Why Build in the United States? There is an aging workforce in the United States, and some would argue we have our own skill/talent problems. But we also have a major advantage over other countries: immi- The U.S. dollar index, a measure of the dollar’s value against several foreign currencies, has declined from approximately 120 in 2001–2002 to the low 70s in early 2008. The United States might be en route to becoming a better manufacturing location than China. Why? n China has allowed its currency to appreciate versus the U.S. dollar; n The decision to peg the 6 eNGINeerING INc. maY / JUNe 2008 gration, legal and illegal. The United States attracts people and, in its own way, welcomes those who want to succeed. That advantage, taken with the dollar’s decline, makes the prospect of building on our shores advantageous. The Japanese started construction on four new U.S. auto assembly plants in the past three years. Korean auto manufacturer Kia recently decided to build a plant in Georgia. The India-based IT services firm Tata Consultancy Services (TCS) just opened a new facility in Cincinnati, Ohio, which includes 200,000 square feet of office space and can accommodate up to 1,000 TCS associates, most of whom will be locally hired from the region and its universities. In March, German auto manufacturer BMW announced plans to cut its German workforce by 7.5 percent over two years, moving production to the United States, where car output is expected to rise by 50 percent between 2008 and 2012 (thanks, in large part, to a $750 million expansion of the company’s South Carolina plant). An Associated Press report detailing the decisions at BMW quoted one source as saying, “This is completely driven by the plunge in the dollar. It is untenable to produce at a much higher cost in Germany.” Joe Salimando writes frequently on the construction industry at www.eleblog.com. He can be reached at ecdotcom@gmail.com. Source: www.barchart.com. Corbis/Jupiter images

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Engineering Inc. - May/June 2008

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