Foxconn, the world’s largest contract electronics manufacturer which formally trades as Hon Hai Precision Industry, has constantly reiterated its plan to automate all repetitive tasks in its factories by deploying over one million robots. This will come on top of the 60,000 human workers already replaced in Foxconn factories with robots since 2016. Japan construction contractor Shimizu has invested more than 3 billion yen ($28 million) in robots over the same period.
These examples represent a trend across industries whereby robots are replacing labor, transforming production processes and turning labor-intensive industries into capital-intensive ones instead. Given the predominance of Asian countries in the manufacturing sector, governments need to pay attention to robotization as it starts to reshape their markets and labor forces.
Government attention and action are urgent as the trend is expected to accelerate. A recent report by McKinsey Global Institute predicts that robots will take between 400 million and 800 million jobs by 2030, affecting up to one-fifth of the global workforce. Morgan Stanley forecasts that 20% of production for Nike and Adidas shoes will move to automated factories by 2023.
Eliminating the benefits of production in low-cost countries, the robotics revolution increases the rationale for production in proximity to the market, enabling companies to benefit from reductions in shipping and inventory costs and to lower the risk of intellectual property theft. This also shortens lead times for responding rapidly to market dynamics.
This has far-reaching consequences for participants in global supply chains. Outsourcing by multinational companies to low-cost countries propelled their rapid economic development in the past few decades. This was nowhere more apparent than in Asia.
The increasing reliance on robots to implement a growing number of production functions challenges this model. Countries such as Bangladesh, Vietnam and Cambodia, whose comparative advantage rests on low costs, are losing their cost advantage not in competition with each other, as was the case historically, but rather in competition with machines and robots. As industrial robots are becoming more intelligent and versatile, they are likely to take over increasing shares of the manufacturing processes.
These developments underscore an urgent need for technology enhancement and the acquisition of skills to shift to activities that cannot be done more cheaply by machines. New technology-based business models allow the wave of local entrepreneurs mushrooming across Africa to leapfrog decades of underinvestment by governments.
Accelerating progress in this direction would require government involvement in the provision of training and the development of supportive infrastructure. Developing countries might also be able to benefit from the growing demand of domestic businesses for materials produced by the robotics transformation.
The reconfiguration of global supply chains holds different implications for developed countries, as well as for some advanced emerging markets such as China and Thailand. These latter countries are likely to benefit from the robotics revolution in at least three ways.
For one, in the automated manufacturing activities relocated to developed countries, robots often supplement and support humans rather than replace them. Humans and robots, known as cobots, are working together to achieve results that are more effective than either can alone.
Electric car company Tesla’s fully-automated battery pack factory in Berlin will provide 10,000 jobs for humans to oversee the robot workforce. Amazon has 100,000 fulfillment robots working in its warehouses but employs 250,000 humans there too as robots don’t have the common sense to execute all tasks.
There is no reason these factories should not exist in advanced emerging markets. The rapid growth of the middle class in some of the largest and most advanced emerging markets has created a rationale for locating them there. Tesla Gigafactory 3 in Shanghai, the company’s first outside the U.S., is a case in point.
Secondly, the robotics revolution is likely to increase demand for skills that cannot be replicated by robots, such as creativity and innovation, which tend to be abundant in advanced economies, making them major beneficiaries of these developments.
Robots are trained on past compositions and provide outputs that are derived from given inputs. Hence, they cannot innovate. Nor can they integrate knowledge, let alone present it with logic and style.
Lastly, global industrial robotics manufacturing opens up growth opportunities and offers an example of the industries likely to emerge as a result of the robotics revolution. Historically, Japanese and European companies dominated here, but a number of companies from the more advanced emerging markets have arrived in recent years as competitors.
Building on the increasing use of robotics in their home markets, companies from China and South Korea are making strides and are expected to become predominant players. These are likely to be major beneficiaries of the anticipated growth in demand for robots.
While robotics and automation create a plethora of opportunities for skilled labor, they substitute many jobs of unskilled labor. Philips’ automated shaver factory in the Netherlands employs one-tenth of the workforce of its factory in China that makes the same shavers. Such developments accentuate inequality and pose severe social pressure in developed countries, which would need to be addressed by government in the years to come.
Lilac Nachum is Professor of Globalization and Management of Multinational Companies at City University New York, and holds visiting positions in business schools around the world. She consults with companies and governments on issue related to globalization and global competitiveness.